Final answer:
ABC company can consider using retained earnings to achieve its desired return on equity figures for different business units. Retained earnings avoid additional interest costs and can fund growth initiatives. Other options include private placements or venture capital, especially for high-growth units like BPO.
Step-by-step explanation:
The ABC company is aiming to achieve different target Return on Equity (ROE) figures across its various business units, including their core IT infrastructure, electric utility, and BPO business. A suitable source of owner's fund that can be considered in this case is retained earnings. Retained earnings are the portion of profits that are kept by the company instead of being distributed to shareholders as dividends. This reinvestment into the business can facilitate in achieving the desired ROE figures by funding new projects or initiatives without the additional cost of interest that comes with borrowed capital.
Another option could be an issue of new equity through a private placement or a rights issue to existing shareholders, although this may dilify existing ownership if not carefully managed. Alternatively, a company could consider venture capital, specifically for a business unit like BPO that has high growth potential. Venture capitalists not only provide finance but also bring valuable expertise and networks which can help the business to expand.
Using retained earnings supports achieving the desired ROE, as these funds do not incur direct costs, thereby not diminishing the returns to the owners. However, such funding must be balanced against the potential benefits of a diversified capital structure and shareholder expectations for dividends.