Case : Naaif Plc

Naaif Plc began operations on 9th February 2002 at Ba. Dharavandhoo. The firm specializes in the production of Rihaakuru. Since the company's beginning, it has been progressively increasing and expanding its operations. By 2022, the company intends to expand its operations to neighbouring atoll islands in order to fulfil rising demand for Rihaakuru. To expand to other islands, the firm requires an extra MVR 300,000 to acquire machinery that would boost its production capacity. It entails long-term financial commitments. These are critical considerations for any firm, since they have a long-term effect on its earning capability. Naaif Plc intends to raise the necessary money through the issuance of debentures. The debt can be issued for a cost of around 12%. The previous year's profit before interest and tax (PBIT) was MVR 165,000, while the total capital investment was MVR 750,000. Rather than issuing a 12% Debenture, the Company may raise funds through the issuance of Equity Shares. Normally, finance manager Ahsan would choose the cheapest option.

Based on above case answer the following questions:

1. 2.

3.

4.

Explain the alternative term for long-term decision in light of the case study. (3 marks)

The firm requires an extra MVR 300,000 to acquire machinery that would boost its production capacity. Explain with reason the name given for this kind of decision in financial management.

(3 marks)

Issuing a 12% Debenture, the Company may raise funds through the issuance of Equity Shares.

Explain with reason the name given for this kind of decision in financial management. (2 marks) Financing decisions are influenced by a number of variables. In light of the case study what factor discuss in it, and justify. (2 marks)