H. Brown (Portsmouth) Ltd produces a range of central heating systems for sale to builders

merchants. As a result of increasing demand for the businesss products, the directors have

decided to expand production. The cost of acquiring new plant and machinery and the increase

in working capital requirements are planned to be financed by a mixture of long-term and shortterm

borrowing.

Required:

(a) Discuss the major factors that should be taken into account when deciding on the appropriate

mix of long-term and short-term borrowing necessary to finance the expansion

programme.

(b) Discuss the major factors that a lender should take into account when deciding whether to

grant a long-term loan to the business.

(c) Identify three conditions that might be included in a long-term loan agreement, and state

the purpose of each.