The slide serves as the title for a financing proposal at Bentley Motors, targeting a £1 million project. It is presented by the company's Finance Director.

Financing Proposal for £1 Million Project

Presented by Finance Director, Bentley Motors

Source: Bentley Motors Finance Department

Bentley Motors, a publicly listed UK luxury automotive company, is the focus of this project, which involves a £1 million capital investment over five years. The initiative aims to enhance operational efficiency and sustainability, thereby supporting the company's long-term growth and innovation.

Introduction & Project Overview

• Bentley Motors: Publicly listed UK luxury automotive company
• Project scope: £1 million capital over five years
• Objective: Enhance operational efficiency and sustainability
• Strategic importance: Supports long-term growth and innovation

Source: (Smith, 2020)

The slide outlines the financial requirements for a project at Bentley Motors, including the need for £1 million in additional capital funding over a five-year timeline. It highlights objectives to enhance operational efficiency and profitability, aligning with the company's strategic goals as noted by Johnson (2019).

Financial Requirements & Objectives

• Requires £1 million in additional capital funding.
• Project timeline spans five years.
• Aims to improve operational efficiency and profitability.
• Aligns with Bentley Motors' strategic objectives (Johnson, 2019).

Source: Johnson (2019)

This agenda slide outlines key long-term financing options for businesses, including equity financing, which involves issuing shares to raise capital without repayment but dilutes ownership. It also covers debt financing via loans or bonds with fixed interest repayments that heighten leverage risk, retained earnings from internal profits offering low-cost funding limited by availability, and leasing for asset rentals that preserve cash flow despite potentially higher long-term costs.

Overview of Long-Term Financing Options

1. Equity Financing

Issuing shares to raise capital; advantages include no repayment, but dilutes ownership.

2. Debt Financing

Loans or bonds for funds; fixed repayments with interest, increases leverage risk.

3. Retained Earnings

Using internal profits; low cost, no external obligations, limited by availability.

4. Leasing

Asset rental agreements; preserves cash flow, but long-term costs may exceed purchase. Source: Bentley Motors: Financing Proposal for £1 Million Project

Equity financing offers advantages like no repayment obligation and shared risk with investors, but disadvantages include ownership dilution, reduced control, and high costs from expected dividends. It involves a roughly 5% dividend yield—higher than debt interest—with risks from market volatility, making it suitable for Bentley Motors' growth projects despite potential control compromises.

Equity Financing – Analysis

Debt financing offers key advantages like tax-deductible interest payments that lower costs, retained ownership without equity dilution, and suitability for Bentley Motors' £1 million project due to its stable cash flows from premium sales. However, it poses disadvantages such as fixed repayment pressures regardless of profits, the need for collateral risking asset seizure, and interest rates of 4-6% that could strain liquidity amid economic volatility over the five-year period.

Debt Financing – Analysis

Source: Brealey et al. (2017)

Retained earnings offer internal financing advantages like no direct costs and avoidance of equity dilution, though they come with disadvantages such as opportunity costs and limitations based on available funds. The approach incurs 0% direct expense but risks reducing dividends, making it ideal when a company's profits are sufficient, as noted by Gitman (2015).

Retained Earnings & Internal Financing – Analysis

• Advantages: No direct cost; avoids equity dilution.
• Disadvantages: Opportunity cost; limited by available funds.
• Cost Implications: 0% direct financing expense.
• Risk Factors: Potential reduction in dividends.
• Suitability: Ideal if Bentley's profits suffice (Gitman, 2015).

Source: Gitman (2015)

Leasing provides advantages like flexibility and off-balance sheet financing but comes with disadvantages such as higher long-term costs compared to ownership and an annual lease rate of about 7%, while also increasing dependency on leased assets. It is particularly suitable for equipment used in five-year projects.

Leasing and Alternative Sources

• Advantages: Offers flexibility and off-balance sheet financing.
• Disadvantages: Leads to higher long-term costs than ownership.
• Cost Implications: Lease rates approximately 7% annually.
• Risks: Increases dependency on leased assets.
• Suitability: Ideal for equipment in five-year projects.

Source: (Brigham & Ehrhardt, 2017)

The slide compares equity and debt financing options, highlighting equity's 12% cost with higher dilution but no repayment obligation, against debt's 7% cost with a lower rate yet interest burden. It also rates equity suitability at 8.5/10 for long-term project stability, while debt scores 6.5/10 due to elevated financial risk.

Comparative Evaluation

• 12%: Equity Cost

Higher dilution but no repayment obligation

• 7%: Debt Cost

Lower rate with interest burden

• 8.5/10: Equity Suitability

Ideal for long-term project stability

• 6.5/10: Debt Suitability

Moderate due to higher financial risk

The slide recommends a hybrid financing approach with 60% debt and 40% retained earnings to optimize cost-efficiency through low interest rates while preserving shareholder control via internal funds. This strategy is justified by the company's strong profits and supporting analysis from Hillier et al. (2016).

Recommendation and Justification

• Recommend hybrid financing: 60% debt, 40% retained earnings.
• Optimizes cost-efficiency via low interest rates.
• Maintains shareholder control through internal funds.
• Justified by strong profits and analysis (Hillier et al., 2016).

Source: Bentley Motors Financing Proposal

The slide outlines key risks in a financial context, including interest rate hikes, cash flow disruptions, and regulatory non-compliance. It proposes mitigation strategies such as using interest rate hedging instruments, diversifying funding sources for stability, and strictly adhering to UK financial regulations.

Risks & Mitigation Strategy

• Interest rate hikes: Mitigate via interest rate hedging instruments.
• Cash flow disruptions: Diversify funding sources for stability.
• Regulatory non-compliance: Adhere strictly to UK financial regulations.

Source: (Arnold, 2013)

The conclusion slide summarizes the key benefits of an optimal capital structure, which minimizes weighted average cost of capital (WACC) and financial risk, supports a £1M project without diluting shareholder value, and enhances liquidity and long-term profitability for Bentley Motors. It also lists references in Harvard style from prominent corporate finance textbooks, including works by Arnold, Brealey et al., and Ross et al.

Conclusion & References

**Key Benefits Summary:

• Optimal capital structure minimizes WACC and financial risk
• Supports £1M project without diluting shareholder value
• Enhances liquidity and long-term profitability for Bentley Motors

References (Harvard Style): Arnold, G. (2013) Corporate Financial Management. 5th edn. Harlow: Pearson. Brealey, R.A., Myers, S.C. and Allen, F. (2017) Principles of Corporate Finance. 12th edn. New York: McGraw-Hill. Ross, S.A., Westerfield, R.W. and Jaffe, J. (2016) Corporate Finance. 11th edn. New York: McGraw-Hill. Brigham, E.F. and Ehrhardt, M.C. (2017) Financial Management: Theory and Practice. 15th edn. Boston: Cengage Learning. Hillier, D., Ross, S.A., Westerfield, R.W., Jaffe, J. and Jordan, B.D. (2016) Fundamentals of Corporate Finance. 3rd edn. London: McGraw-Hill. Berk, J.B. and DeMarzo, P.M. (2017) Corporate Finance. 4th edn. Harlow: Pearson. Watson, D. and Head, A. (2016) Corporate Finance: Principles and Practice. 6th edn. Harlow: Pearson. Gitman, L.J. and Zutter, C.J. (2015) Principles of Managerial Finance. 14th edn. Harlow: Pearson. Atrill, P. and McLaney, E. (2019) Accounting and Finance for Non-Specialists. 10th edn. Harlow: Pearson. Drake, P.P. (2017) Foundations and Applications of the Time Value of Money. Hoboken: Wiley.**