Expansion
Chapter 22
Reasons for expansion:
Psychological reasons – Maslow’s need for achievement
Economies of scale – reductions in cost of production because of increased efficiency of
larger firm
Diversification into different product ranges – reduces dependence on one product line for
survival
Safeguarding the supply of raw materials
Synergy – (2 + 2 = 5) rock sandy (club orange)
Elimination of competition
Profits
Growth in Agri-Industry
Finance for expansion (debt vs equity)
Equity capital no dividend until preference shareholders are paid first
*if company goes broke, ordinary shareholders are the last people to receive money for their
investment. Ordinary shareholders have one vote (1 share = 1 vote)*
Retained earnings profits of the company being ploughed back into the business to fun
expansion
a.k.a. reserves
Debt capital mortgages and debentures
Mortgages long term loan to buy lang or property
title deeds given as security
Debentures long term loans when the interest only is paid back in one lump sum at the
end of a specified period
debt equity
Cost Interest over a period of time No cost involved
Time Quick Can take a long time to gather
money
Security Security needed No security
i.e. deeds (collateral)
Control No control Control is diluted
Implications of expansion on a business
- Management - Research and development
- Funding - Planning
- Financial structure and control - Profits and dividends
- Human resources
Chapter 22
Reasons for expansion:
Psychological reasons – Maslow’s need for achievement
Economies of scale – reductions in cost of production because of increased efficiency of
larger firm
Diversification into different product ranges – reduces dependence on one product line for
survival
Safeguarding the supply of raw materials
Synergy – (2 + 2 = 5) rock sandy (club orange)
Elimination of competition
Profits
Growth in Agri-Industry
Finance for expansion (debt vs equity)
Equity capital no dividend until preference shareholders are paid first
*if company goes broke, ordinary shareholders are the last people to receive money for their
investment. Ordinary shareholders have one vote (1 share = 1 vote)*
Retained earnings profits of the company being ploughed back into the business to fun
expansion
a.k.a. reserves
Debt capital mortgages and debentures
Mortgages long term loan to buy lang or property
title deeds given as security
Debentures long term loans when the interest only is paid back in one lump sum at the
end of a specified period
debt equity
Cost Interest over a period of time No cost involved
Time Quick Can take a long time to gather
money
Security Security needed No security
i.e. deeds (collateral)
Control No control Control is diluted
Implications of expansion on a business
- Management - Research and development
- Funding - Planning
- Financial structure and control - Profits and dividends
- Human resources
