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IBBM-Finance & Accounting Unit 3.1 Sources of Finance Flashcards | StudBud
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IBBM-Finance & Accounting Unit 3.1 Sources of Finance
IBBM-Finance & Accounting Unit 3.1 Sources of Finance
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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
Fixed assets can be used as _____________ to secure a loan.
collateral
references
expendibles
revenues
2
Buy now, pay later is this form of external financing.
Bank Loan
Debt factoring
Bank Overdraft
Trade Credit
3
Businesses need finance for:
day-to-day running of the business
All choices are correct
purchasing assets
start-up capital
4
Unincorporated businesses have unlimited liability which means:
owners are personally liable for business debts
owners cannot be sued
owners do not lose more than they invested
the business can possibly be sued
5
The terms of trade credit are usually between:
10-20 days
30-180 days
30-120 days
30-90 days
6
This external source of finance is the most flexible.
Trade Credit
Bank Overdraft
Bank Loan
Selling shares
7
Businesses may sell fixed assets because:
they need to raise cash
all answers are correct
assets are not being used
they need to increase liquidity
8
These individuals invest in smaller companies and tend to be less risk averse than banks.
Venture Capitalists
Banks
Credit Unions
Shareholders
9
A company or individual who owes the business money is called a(n):
creditor
financier
loan shark
debtor
10
Higher risk businesses will have to pay a higher cost of capital from lenders.
False
True
11
External sources of finance ____________________________.
tend to have a low cost of capital.
include sale of company assets and trade credit.
are raised from inside the business.
include sale of shares, VCs, and bank overdrafts.
12
The main source of finance for sole traders and partnerships are:
Personal Savings
Debentures
Banks
Stocks
13
Using retained profits will incur interest charges.
False
True
14
Investing unused cash can be another internal source of finance by:
earning interest on investments
saving money for a rainy day
building up inventory
preventing business from having poor cash flow
15
Bonds issued by a company with a fixed rate of interest are called:
Stocks
Equity
Debentures
Loans
16
Selling assets is another form of external sources of finance.
False
True
17
This is a medium term source of finance:
Selling Shares
Selling Debentures
Hire Purchasing
Bank Overdraft
18
Variable rate loans can be more expensive than fixed rate loans.
True
False
19
Making monthly payments to pay for a fixed asset over 12-24 months is called:
Renting
Installment Plan
Debt Ceiling
Leasing
20
Fixed assets are ____________________________.
items intended for resale.
valuable assets worth more than $100K.
instrumental in generating profits.
assets that cannot be moved.
21
Equity financing is when ___________________ issue shares.
limited companies
partnerships
incorporations
sole proprietors
22
Medium term financing is:
< 1 year
> 5 years
1 - 5 years
23
An advantage of using debentures vs. selling shares is:
You have to pay dividends
The owners maintain more control
The owners tend to have less control
It is interest-free
24
Hire purchase and leasing saves a business money by avoiding large costs up front.
True
False
25
Leasing is similar to hire purchasing except that:
You don't own the asset at the end
You own the asset at the end
You have an option to purchase the asset at the end
26
Money from government or other agencies to help finance businesses do not need to be paid back.
Trade Credit
Grants
Bank Overdraft
Venture capitalists
27
Retained profits are also known as ploughed back or internal profits.
False
True
28
A form of internal finance is selling company assets.
False
True
29
External sources of finance will involve a financial reward to the providers such as interest.
True
False
30
Payments for the daily running of a business are considered:
Assets
Capital Expenditures
unnecessary
Revenue Expenditures
31
A disadvantage of debentures would be:
Increases the gearing ratio
Decreases the gearing ratio
The business loses some control
you have to pay dividends
32
An advantage of using retained profits is:
sufficient for expansion
good for start-ups
no contingency plans are needed
business has control over what they use money for
33
Trade credit is a source of finance because the business is delaying payment.
True
False
34
Internal sources of finance are useful to businesses for all reasons except:
helps with rapid growth
no direct costs for using this method
control is maintained by the business
does not increase liabilities
35
When choosing a source a finance a business must consider:
the flexibility of the source
the state of the economy
all choices are correct
the relative cost of the source
36
A debt factor makes money by not paying the business the full value of invoices (80-90%).
True
False
37
The finance spend on purchasing fixed assets and other large priced items is called:
Working Capital
Revenue Expenditure
Operating Expenditure
Capital Expenditure
38
Selling accounts receivable to a business to receive a percentage of the value today is called:
Liquidating
Trade Credit
Debt Factoring
Overdraft
39
Working capital is calculated by:
fixed assets - current assets
fixed assets - cash
current assets - current liabilities
fixed assets - current liabilities
40
Using retained earnings can cause conflict with which stakeholder?
Employees
Owners
Managers
Shareholders
