Ali, a small company, is currently considering a major capital investment project for which additional finance will be required. It is not currently feasible to raise additional equity finance; consequently, debt finance is being considered. The decision has not yet been finalized as to weather this debt finance will be short or long term and if is to be at fixed or variable rates. The financial controller has asked you for your assistance in the preparation of a report for a forthcoming meeting of the board of director.

Required;

Prepare a draft to the board of directors which identifies and briefly explains:

(a) The main factors to be considered when deciding on the on the appropriate mix of short-, medium- or long-term debt finance for Ali.

(b) The practical considerations which could be factor in restricting the amount of debt which Alin could raise.