Taka is considering sending a message regarding a raise but is concerned since the company is struggling financially. Taka has determined the specific purpose of his message; however, he should answer which of the following questions before sending his message? A. Will management allow this message to be sent? B. Will anything change as a result of the message? C. Is the time right? D. Is the purpose acceptable to the organization? E. Is the purpose realistic?

A. Will management allow this message to be sent?

Answer A:

This depends upon the financial health of the company and the project for which the funds are required. If the company is raising debt finance and its financial health is not good, then it seems the management might reject the idea to raise debt finance because the company have to pay interest on this amount borrowed. But if the company is raising equity finance then greater chances exist that the management will encourage this move.

B. Will anything change as a result of the message?

Answer B:

Ofcourse, if the debt finance is used it would make the financial health of the company worse than before if the project for which the loan option is choosen does not performs well in the market. If the projects performs well then it will reduce the financial distress and head the company towards another investment to further reduce the gearing and increase the interest cover.

C. Is the time right?

Answer C:

It might be right time to borrow because after some time there might be a rare chances to borrow or raise equity because of further poor performance. It is also possible that the investment will decrease the financial gearing from its better performance, which is the need of the time. So it depends a lot on the source of finance, project profitability and time. If we use equity finance then it provides financial protection for a greater period.

D. Is the purpose acceptable to the organization?

Answer D:

If the company raising the finance to pay its debt then that's not the right option. The company must raise finance to invest somewhere else and earn a good share of investment in the comings year to meet the interest due and make another investments. It also depends what is the purpose of the fund raising. Usually the lenders prefer to pay to companies when companies make investments.

E. Is the purpose realistic?

Answer E:

If the company is making unrealistic assumptions then it is probable that the company performance in the year will be very poor. So making better forecasting is a better way to sense the risks in the market and also tells the way we must tackle these risks.