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Sources of Finance
Sources of Finance
40 terms
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A review of internal and external sources of finance.
Flashcards
40 cards
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Practice quiz
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Questions
40
Answers
1
External sources of finance will involve a financial reward to the providers such as interest.
False
True
2
Selling assets is another form of external sources of finance.
True
False
3
External sources of finance are raised from inside the business.
False
True
4
Internal sources of finance are useful to businesses for all reasons except:
Does not increase liabilities
helps with rapid growth
control is maintained by the business
No direct costs for using this method
5
Unincorporated businesses have unlimited liability which means:
they have a chance to be sued
they do not lose more than they invested
they will never be sued
they can lose all property owned
6
Selling the accounts receivable to another business in order to receive cash is called:
Liquidating
Debt Factoring
Trade Credit
Overdraft
7
Using retained profits will incur interest charges.
False
True
8
Medium term financing is:
1 - 5 years
> 5 years
< 1 year
9
This external source of finance is the most flexible.
Bank Loan
Trade Credit
Bank Overdraft
Selling shares
10
Using retained earnings can cause conflict with which stakeholder?
Shareholders
Employees
Owners
Managers
11
The finance spend on purchasing fixed assets and other large priced items is called:
Revenue Expenditure
Capital Expenditure
12
A disadvantage of debentures would be:
Decreases the gearing ratio
you have to pay dividends
The business loses some control
Increases the gearing ratio
13
This is a medium source of finance:
Hire Purchasing
Selling Debentures
Selling Shares
Bank Overdraft
14
Someone who owes the business money is called a(n):
loan shark
accounts receivable
creditor
accounts payable
15
Equity financing is when limited companies issue shares.
True
False
16
Hire purchase and leasing saves a business money by not making a large initial down payment.
False
True
17
Money from government or other agencies to help finance businesses do not need to be paid back.
Trade Credit
Venture capitalists
Grants
Bank Overdraft
18
The terms of trade credit are usually between:
30-180 days
30-120 days
10-20 days
30-90 days
19
Investing extra cash can be another internal source of finance by:
Earning interest on investments
Prevents business from having poor cash flow
Saving money for a rainy day
20
Working capital is calculated by:
fixed assets - current liabilities
fixed assets - cash
current assets - current liabilities
fixed assets - current assets
21
Buy now, pay later is this form of external financing.
Bank Overdraft
Trade Credit
Debt factoring
Bank Loan
22
Fixed assets can be used as collateral to secure a loan.
True
False
23
Fixed assets are intended for resale.
False
True
24
An advantage of using debentures vs. selling shares is:
It is interest-free
The owners has more control
The owners have less control
You have to pay dividends
25
Leasing is similar to hire purchasing except that:
You have an option to purchase the asset at the end
You own the asset at the end
You don't own the asset at the end
26
The main source of finance for sole traders and partnerships are:
Stocks
Banks
Personal Savings
Debenutures
27
Businesses sell assets because:
They need to raise cash
All answers are correct
they need to increase liquidity
Assets are not being used
28
These individuals invest in smaller companies and take a higher risk of lending money to them.
Credit Unions
Shareholders
Venture Capitalists
Banks
29
Businesses need finance for:
start-up capital
purchasing assets
day-to-day running of the business
All choices are correct
30
Variable rate loans can be more expensive than fixed rate loans.
False
True
31
When choosing a source a finance a business must consider:
the state of the economy
the flexibility of the source
all choices are correct
the cost of the source
32
An advantage of using retained profits is:
sufficient for expansion
Business has control over what they use money for
good for start-ups
no contingency plans are needed
33
A form of internal finance is selling assets.
False
True
34
Making monthly payments to pay for a fixed asset over 12-24 months is called:
Renting
Hire Purchase
Leasing
Debt
35
Payments for the daily running of a business are considered:
Revenue Expenditures
Capital Expenditures
Assets
unnecessary
36
Trade credit is a source of finance because the business is delaying payment.
False
True
37
Higher risk business will have to pay a higher rate of interest in order to get a loan.
True
False
38
Bonds issued by a company with a fixed rate of interest are called:
Stocks
Debentures
Loans
Equity
39
A debt factor's profits are made by not paying the business the full value (80-90%).
True
False
40
Retained profits is also known as ploughed back or internal profits.
True
False
