Practise distinguishing internal from external finance and analysing the advantages and disadvantages of grants, overdrafts, retained earnings, trade credit, equity and loans.
ML Computers (MLC)
MLC is a successful private limited company that has been trading for 20 years in country K. The company makes a range of laptop computers. It is the market leader in a highly competitive market.
MLC is developing a new touchscreen computer that will use the latest technology. Initially secondary market research was carried out, followed by primary market research. The market research data suggested a high potential demand for the new touchscreen computer.
The Marketing Manager is planning the launch of the new touchscreen computer using price skimming.
All computers are made in MLC's two factories in country K. Operations are capital intensive. New machinery is needed to manufacture the new touchscreen computer. Maria, the Managing Director, decided to use leasing for the new machinery.
MLC has 350 employees. One of its objectives is to reduce labour turnover to 8% by 2026.
Labour turnover rates currently vary across the two factories. The labour turnover for Factory A is currently 14%. Table 2.1 shows employee data for Factory B.
Table 2.1 Employee data for Factory B
Maria is the majority shareholder with 55% of shares. She is concerned about the future growth of the company. Over the next three years she plans to launch five new computers using the latest technology. At a recent board meeting Maria proposed that the company changes the ownership of the business to a public limited company.
Explain the term leasing.
