Ali Marble Ltd.: “A business that doesn’t grow dies”, says Mr. Ali, the owner of Ali Marble Ltd. with glorious 48 months of its grand success having a capital base of RS.100 crores. Within a short span of time, the company could generate cash flow which not only covered
Ali Marble Ltd.: “A business that doesn’t grow dies”, says Mr. Ali, the owner of Ali Marble Ltd. with
glorious 48 months of its grand success having a capital base of RS.100 crores. Within a short span of time,
the company could generate cash flow which not only covered fixed cash payment obligations but also
create sufficient buffer. The company is on the growth path and a new breed of consumers is eager to buy
the Italian marble sold by Ali Marble Ltd. To meet the increasing demand, Mr. Ali decided to expand his
business by acquiring a mine. This required an investment of RS.140 crores. To seek advice in this matter,
he called his financial advisor Mr. Hassan who advised him about the judicious mix of equity (55%),
institution as the cost of raising funds from financial institutions is low. Though this will increase the
financial risk but will also raise the return to equity shareholders. He also apprised him that issue of debt
will not dilute the control of equity shareholders. At the same time, the interest on loan is a tax-deductible
expense for computation of tax liability. After due deliberations with Mr. Hassan, Mr. Ali decided to raise
funds from a financial institution.
1. Identify and explain the concept of
situation.
2. State the four factors affecting the concept as identified in part (1) above which have been discussed
between Mr. Ali and Mr. Hassam.
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