The cheapest source of finance is (2024)

FAQs

What is the cheapest source of finance? ›

Retained earning is the cheapest source of finance.

The firm gets an income tax benefit on the interest component that is paid to lender. Therefore, the net taxable income of the company is reduced to the extent of the interest paid. All other sources do not provide any such benefit and hence,it is considered as a cheaper source of finance.

Ans: (d) Retained earnings are the cheapest source of finance. Retained income is the portion of an organization's net income or profits that it keeps after paying dividends. An organization's retained earnings or profits can be reinvested for the purposes of expansion, modernization, and so on.

Retained earnings are the part of funds which are available within the business and is hence a cheaper source of finance.

Since Debt is almost always cheaper than Equity, Debt is almost always the answer. Debt is cheaper than Equity because interest paid on Debt is tax-deductible, and lenders' expected returns are lower than those of equity investors (shareholders). The risk and potential returns of Debt are both lower.

Affordable housing financing is the process by which a public or private entity secures capital to pay for the building, maintenance, and/or renovation costs of affordable units. Affordable hous- ing by its very nature cannot be sustained without financial subsidy.

The most significant advantage to paying cash for a car is saving money on interest payments. In most cases, the total interest paid on a 60-month car loan totals several thousand dollars. If you have poor credit, the costs will be even higher, as your loan terms will depend on your credit history.

Total Balance (2023, Q4)

Mortgage debt is most Americans' largest debt, exceeding other types by a wide margin.

What is the most common source of debt? ›

Answer and Explanation: Businesses don't use 100 percent debt funding since the governing administration may impose higher tax rates on the interest earned from debt financing than on dividends achieved.

They are inexpensive/cheap (not free): The cost of capital of retained profits is the opportunity cost for the shareholders to leave profits in the business (like they could get a return by leaving it in the business).

Retained earnings are an easy source of financing

Hence, when your business keeps its retained profits, it builds a safety net by providing liquidity for low revenue situations. During any emergency condition, your business would have funds to keep operations on and make basic payments.

Retained profit, or retained earnings, is the portion of a business' earnings that it keeps after taking shareholder dividends into account. It is calculated using net income, net income brought forward, and dividends (cash and stock).

Preference Share is the Costliest Long - term Source of Finance. The costliest long term source of finance is Preference share capital or preferred stock capital. It is the source of the finance.

The cost of finance. Debt finance is usually cheaper than equity finance.