H. Brown Ltd. produces a range of central heating systems for sale to builders. As a result of increasing demand for the business's products, management has decided to expand production. The cost of acquiring new plant and machinery and the increase in working capital requirements are planned to be financed by a mixture of long-term and short-term borrowing.
Required:
(a) Discuss the major factors that should be taken into account when deciding on the appropriate mix of long-term and short-term borrowing necessary to finance the expansion program.
(b) Discuss the major factors that a lender should take into account when deciding whether to grant a long-term loan to the business.
(c) Identify three restrictions that might be included in a long-term loan agreement, and state the purpose of each.