W plc was established nine years ago. The company has grown steadily throughout that period and the directors are beginning to plan the next stage of expansion. The company requires to raise a substantial amount of finance in order to grow and the directors are considering the options that are open to them. One possibility is to raise funds through borrowing. Another would be to raise further equity, although the directors are of the opinion that they might have to seek a stock exchange quotation in order to do so.

(i) Describe the tax implications of selecting a source of finance from the point of view of the company and the provider of the finance.

(ii) Explain why it might not always be appropriate for management to choose the least expensive form of capital whenever new finance is required.

(iii) Explain the advantages and disadvantages of seeking a stock exchange listing.

(iv) All of W plcís shares are held by the directors, all of whom are actively involved in the running of the company…