What external sources of finance is ABC considering?

• A. Grants from government
• B. Retained earnings
• C. Loan capital and a potential new share issue
• D. Trade finance

Answer: (C)

External finance means money coming from outside the business. The option that combines loan capital and a potential new share issue is the best fit because it shows ABC is looking at both major external routes: debt and equity. Loan capital provides immediate funds but must be repaid with interest, affecting cash flow and leverage. A new share issue brings in funds without fixed repayments, though it dilutes ownership. Using both suggests a balanced plan to raise substantial capital while managing risk and ownership.

Other external possibilities like government grants can be uncertain and conditional, and trade finance typically funds short-term trading and working capital rather than long-term investment. Retained earnings are internal, not external. So combining debt and a potential equity issue best reflects ABC’s approach to external financing.