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ASG Ch11 Financing the Business Flashcards | StudBud
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ASG Ch11 Financing the Business
ASG Ch11 Financing the Business
20 terms
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#SACE #Accounting #sourcesoffinance
Flashcards
20 cards
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Questions
20
Answers
1
The longer the term of the loan, the more you pay back in .........................
Interest.
your profits.
your loan.
10 years time.
2
Which of these is an example of internal finance?
trade credit
Improving debtor turnover
Bank overdraft
lease
3
The injection of additional funds into a business by a sole proprietor is not common because
it is cheaper to borrow from a bank
it could drive the business broke
it increases the gearing (leverage) of the business
personal funds are often already committed to the business
4
An interest only loan has
a large final repayment
higher monthly repayments
a steady reduction of the principal.
a lower level of risk for the lender
5
Which of the following is an example of medium term finance?
Trade Credit
Bank overdraft
Term Loan
Mortgage
6
External funds can be preferred over internal funds because
that makes the business more stable and secure
the owner can then use her funds elsewhere
that should increase the return on equity
the firm wants to decrease gearing (leverage)
7
A guiding principle to keep in mind with regard to financing assets is
Total Liabilities should not exceed Owners' Equity.
Always get a secured loan as it is cheaper.
Make sure the loan can be repaid in the current period.
Length of the loan should relate to the purpose of the loan.
8
What are the repayment terms for medium finance?
Less than 1 year
3-7 years
10 years or more
1-2 years
9
Times Interest Earned Ratio shows
the level of gearing (leverage)
how profitable the business is
how much the business relies on borrowed money
how well the business uses borrowed money
10
Which of the following types of finance is the best option to finance a tractor for the farm.
Trade credit
Long term loan
Bank overdraft
Medium term loan
11
If a business has Assets of 10, Liabilities of 8 and Owners Equity of 2
The liabilities to assets ratio is 20%
The liabilities to assets ratio is 400%
The liabilities to assets ratio is 25%
The liabilities to assets ratio is 80%
12
What are four main objectives of financial management?
Liquidity, profitability, risk minimisation, growth
Growth, liquidity, risk minimisation, surplus cash
Short term finance, liquidity, risk minimisation, bank loan
Capital, finance, profitability, liquidity
13
Retained profit
is available in large amounts
is useful for funding a new factory
is not used often due to the higher interest applicable
is an example of internal finance
14
Mavis wants to increase her stock and do a new fit-out of her shop. Suitable finance might be
Mortgage and Trade Credit
Medium Term Loan
Lease
Bank Overdraft and Medium Term Loan
15
If a business has Assets of 10, Liabilities of 8 and Owners Equity of 2
The debt to equity ratio is 80%
The debt to equity ratio is 25
The debt to equity ratio is 400%
The debt to equity ratio is 20%
16
Debt to Equity Ratio shows
the size of liabilities relative to shares
how profitable the business is
how much the business relies on borrowed money
how well the business uses borrowed money
17
What are the repayment terms for short-term finance?
Up to 1 year
Up to 10 years
5-10 years
Two weeks
18
A secured loan
has a mortgage or other claim over assets
has a higher interest rate
is more common for short term loans than long term loans
is more risky for the lender
19
You wish to purchase $100000 worth of land. Which is probably the best financing option?
Mortgage
Bank overdraft
Medium term loan
Lease
20
Which of the following types of finance is the best option to finance inventories?
Lease
Trade Credit
Mortgage
Bank Loan
