The paper "TNA Company Management" is a perfect example of a finance and accounting case study. TNA Company is a large company in Vietnam which has got potential for growth. After a strong business analysis, its agent has advised the management to consider investing in acquiring a small local manufacturing company in Vietnam which is conveniently located close to the ports and transport routes and has a loyal and hardworking workforce. However, the factory has out-dated equipment and a relatively high-cost structure and the firm is increasingly falling behind its competitors.
The acquisition of the small local manufacturing will enable TNA company to establish a production facility in the heart of Asia without the problems and lead time involved in developing a Greenfield facility. Financially, this investment will result in TNA Company making revenue of A$ 200,000 monthly from the beginning of the year 2017 when the acquisition shall be complete and the replacement of the old equipment facilitated. TNA company management is confident of rapidly gaining additional food processing and packaging business because of the superiority of their new equipment that will actually produce quality products that will satisfy the customers and retain them as well as attract other new customers who may be in need of equipment for food processing and packaging.
The revenue of the TNA company s expected to grow in 5 years consecutively at these rates; 20%, 30%30%20% and 10% respectively. The investment requires a total capital of 10 million Australian dollars; the 6 million Australian dollars will be used to purchase 100% of the Vietnamese company from its shareholders and the 4 million Australian dollars will be used by the TNA company management in the capital replacement of the old equipment of the Vietnamese company so as to as make it efficient and able to reach the projected revenue of 200000 Australian dollars per month. SOURCES OF FUNDS TNA Company’ s investment plan of acquiring the small local manufacturing firm will require funds worth 10 million Australian dollars as capital.
The acquisition of the small local manufacturing company by TNA Company is a long-term investment that requires a huge amount of capital to facilitate the entire exercise of acquisition. In any investment, it’ s advisable for the management to use a cheaper source of funds to finance its investment.
This kind of capital can only be raised by the use of the long term sources of funds that can support the investment for a period that is over one financial period i. e one year. TNA can use the following options to source funds that will facilitate the new investment (Damodaran, 2010). 1. Retained earnings This source of fund generally entails the earned profits of the company that were reserved over the previous financial periods are re-invested bank into the company investments so as to increase the dividends paid to the current shareholders.
The retained earnings can be one of the sources of funds for TNA Company to facilitate the acquisition of the small local manufacturing firm. This source of funds is the cheapest because it doesn’ t have debt cost and dividend payment to the shareholders. TNA Company can invest 40% of its retained earnings in the acquisition of the small local manufacturing company and retained the 60% of its retained earnings to avoid putting the company at risk of insolvency.
Most companies tend to retain most of its profits earned in the reserves for purposes of speculation for investments. Any investment that is fully financed by the retained earnings is considered to be cheaper since there are no major capital costs that are accompanied such as dividends and interests (Ehrhardt, 2008).
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