The paper "Fire Tenders - Lancashire Fire and Rescue Service Station" is a perfect example of a finance and accounting assignment. This is a detailed report on the replacement of four fire tenders based at Lancashire Fire and Rescue Service station. The report identifies six risks associated with the replacement or failure to replace the fire engines. Some risks have been shown to have a direct financial focus while others have non-financial or indirectly financial. The report also discusses the steps that may be taken to mitigate the risks, systems and workplace controls that may reduce the risks and offers financial reviews to support the proposal.
The report concludes by demonstrating how the finances of the fire and rescue service may be safeguarded. Risk identification In risk identification, the report is concerned with how the fire engines or the earning capacity of the enterprise can be threatened. According to Horne (2001), financial risk is the risk to the fire station of being unable to cover the required financial obligation. Liquidity risk: every time the fire station makes an investment decision, it is at the same time making a financing decision.
A decision to buy a fire engine implies a specific way of financing that project. The question that the fire authority should ask is whether the fire station should employ equity or debt or both. What implications are there of the debt-equity mix? What would be the appropriate mix of debt and equity? The fire engines can be financed by increasing owners’ claim or creditors’ claim. The owners’ claim increases when the fire station raises fund by retaining the earnings. The creditors’ claim is increased by borrowing.
These borrowings represent the fixed financial charges, which the fire station should use to magnify the effect of changes in earnings before interest and taxes (EBIT). This kind of financing is intended to earn more on the fixed charges funds than their costs. In the event, the return of the fire station is lower than the cost of these funds a liquidity risk will arise since these funds attract some obligations that the fire station has to honour when they are due.
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