Unit-6 Sources Of Long-Term Finance And Underwriting

In this unit we shall examine in detail the nature and importance of long-term finance.

What is a leasing company? How can a company secure long-term finance through a leasing company? What do you understand by 'sale and lease back'?

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Learning Pundits Content Team

Written on Apr 15, 2019 6:24:29 PM

Leasing companies invest funds in assets and charges rental from the user companies. Long-term finance is sometimes available to large industrial concerns through collaboration with foreign companies or from the World Bank or International Finance Corporation, subject to the approval of the Government of India. Non-resident Indians can also subscribe to the shares and debentures issued by companies in India subject to certain restrictions. To the extent profits are not distributed as dividends, the retained amount becomes a source of long-term finance for companies.

Manufacturing companies can secure long-term funds from leasing companies. For this purpose a lease agreement is made whereby plant and machinery and fixed assets may be purchased by the leasing company and allowed to be used by the manufacturing concern for a specified period on payment of an annual rental. At the end of the period the manufacturing company (lessor) may have the option of purchasing the asset at a reduced price. The ownership of the asset remains with the leasing company (lessor) during the lease period. To meet its financial requirements, a manufacturing company may also sell its existing fixed assets to a leasing company at the current market price on the condition that the leasing company would lease the assets back to the seller for a specified period. Such an arrangement is known as 'sale and lease back'.

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