IB Business And Management Accounts & Finance: 3.1 Sources Of Finance
Settings
.
- 1.Directors own the money of incorporated firms and use these on behalf of shareholders
- A.
True
- B.
False
- 2.Government grants and subsidies are a form of external financing
- A.
True
- B.
False
- 3.Personal finance is the cheapest source of finance
- A.
True
- B.
False
- 4.Share issues by a company are considered to be internal sources of finance
- A.
True
- B.
False
- 5.Collateral acts as security to a lender in case debtors default on their loans
- A.
True
- B.
False
- 6.Capital expenditure is used to pay for the working capital of an organisation
- A.
True
- B.
False
- 7.High loan capital means the business is likely to suffer during times of rising interest rates
- A.
True
- B.
False
- 8.Overdrafts are easier to obtain than most other forms of external finance
- A.
True
- B.
False
- 9.Permanent capital is equal to the value of shareholders' funds; i.e. share capital and reserves
- A.
True
- B.
False
- 10.It is best if a business reduces obtaining finance from a variety of sources simply because it raises its financial risks
- A.
True
- B.
False
- 11.Venture capitalists tend to invest their money in medium to large-sized businesses since they have the best investment track record
- A.
True
- B.
False
- 12.A firm which issues debentures at a fixed rate of 12% for five years will benefit if overall interest rates in an economy fall
- A.
True
- B.
False
- 13.If interest rates in an economy increase, dividend payments to shareholders will also have to increase.
- A.
True
- B.
False
- 14.For a large book publishing firm, classify bank interest receivable as being:
- A.
Asset
- B.
Liability
- C.
Expense
- D.
Revenue
- 15.For a large book publishing firm, classify bank loans as being:
- A.
Asset
- B.
Liability
- C.
Expense
- D.
Income(Revenue)
- 16.For a large book publishing firm, classify bank overdrafts as being:
- A.
Asset
- B.
Liability
- C.
Expense
- D.
Revenue
- 17.For a large book publishing firm, classify debentures as being:
- A.
Asset
- B.
Liability
- C.
Expense
- D.
Revenue
- 18.For a large book publishing firm, classify insurance premiums as being:
- A.
Asset
- B.
Liability
- C.
Expense
- D.
Revenue
- 19.For a large book publishing firm, classify motor vehicles as being:
- A.
Asset
- B.
Liability
- C.
Expense
- D.
Revenue
- 20.For a large book publishing firm, classify rent accruals as being:
- A.
Asset
- B.
Liability
- C.
Expense
- D.
Revenue
- 21.Which of the following is the most feasable reason for using personal finance
- A.
Insufficient internal sources of finance
- B.
Insufficient external sources of finance
- C.
There is no interest obligation
- D.
To please the owners/shareholders of a company
- 22.Advantages of growth through share issue include all those listed below except:
- A.
Less risk due to the spreading of risks amongst shareholders
- B.
An extra source of funds
- C.
Control of the company is diluted
- D.
Form of motivation for employees who own shares in a company
- 23.Which of the following is a drawback to a business that issues debentures?
- A.
There is dilution of control
- B.
There is dilution of ownership
- C.
Lenders do not have any voting rights
- D.
The value of liabilities increases
- 24.Which of the following is a drawback to a business that issues debentures?
- A.
There is dilution of control
- B.
There is dilution of ownership
- C.
Lenders do not have voting rights
- D.
The value of liabilities increases
- 25.An advantage of using internal funds to purchase a new office building could include
- A.
Limited impact on a firm's working capital
- B.
Lower level of gearing
- C.
Dilution of ownership
- D.
Increased value of fixed assets
- 26.Businmesses might choose to use external sources of finance because
- A.
There are no interest charges
- B.
Potential cash flow problems are avoided
- C.
There is insufficient retained profit
- D.
There is an expected increase in interest rates
- 27.Which of the following is not a source of external financing for a public limited company?
- A.
Overdraft
- B.
Debentures
- C.
Retained profits
- D.
Share capital
- 28.The only real difference between bonds and debentures, is that bonds are secured against a company's assets and debentures are not, and as such bonds typically pay a higher rate of interest for the increased risk to the investor.
- A.
True
- B.
False
- 29.The only real difference between bonds and debentures, is that debentures are secured against a company's assets and debentures are not, and as such debentures typically pay a higher rate of interest for the increased risk to the investor.
- A.
True
- B.
False
- 30.The only real difference between bonds and debentures, is that bonds are secured against a company's assets and debentures are not, and as such debentures typically pay a higher rate of interest for the increased risk to the investor.
- A.
True
- B.
False
- 31.Debenture holders
- A.
Own a part of the company in which they hold debentures
- B.
Are paid a return from the profits of a company
- C.
Receive payments from companies before any shareholders
- D.
Are represented as current liabilities on the company's balance sheet
- 32.Which of the following is the least likely source of funds for a non-profit organisation?
- A.
Fund-raising events
- B.
Charitable donations
- C.
Brand recognition
- D.
Sponsorship deals
- 33.Advantages of internal finance do not include
- A.
Greater flexibility in use of finance
- B.
Greater choice of finance
- C.
No need to go through administrative procedures
- D.
Tax concessions for the use of internal profits
- 34.Which of the following is not a source of finance for an ordinary partnership?
- A.
Secured bank loans
- B.
Sale and Leaseback
- C.
Debt factoring
- D.
Initial public offering
- 35.Which statement below best describes hire purchase?
- A.
The hiring of equipment for a period of time
- B.
Repaying loans by making fixed regular payments
- C.
Hiring out equipment as a source of finance
- D.
Differs from leasing in that ownership occurs with the last instalment
- 36.Which of the following does not describe a clear difference between debenture holders and shareholders of a company?
- A.
Voting rights in the company
- B.
Ownership of the company
- C.
Interest and dividends as a form of financial return
- D.
Impact on a company's working capital
- 37.The contract used to raise finance by selling the freehold to an asset and then renting it back immediately on a long-term basis is known as
- A.
Sale and Leaseback
- B.
Working capital
- C.
Fixed assets
- D.
Trade creditors
- 38.The debt factoring service that allows the client to be protected against bad debts is known as
- A.
Overdraft
- B.
Non-recourse factoring
- C.
Discount factor
- D.
Collateral
- 39.Sun Photography Corp. has a cash flow deficit of $85 000. It has debtors to the value of $100 000, what is the maximum charge that a factoring service could impose to make this source of finance feasible?
- A.
5%
- B.
10%
- C.
15%
- D.
20%
- 40.Which statement does not apply to the use of Sale and Leaseback?
- A.
The firm can continue to use the asset it has sold and leased back
- B.
The value of fixed assets remains unchanged since the firm keeps use of the asset
- C.
The firm can continue on trading as if nothing has happened
- D.
The finance released through he sale would improve the firm's liquidity position
- 41.Which source of finance below would best be described as loan capital?
- A.
Preference shares
- B.
Equity
- C.
Debentures
- D.
Debt factoring
- 42.There must be sufficient finance to pay for the daily running of the business.This money is known as
- A.
Working capital
- B.
Work-in-progress
- C.
Reserves
- D.
Buffer stocks
- 43.Debentures can best be described as a form of
- A.
Short-term loan with variable interest rates
- B.
Medium-term loan with variable interest rates
- C.
Long-term loan with a fixed interest rate
- D.
Long-term security giving the holder part ownership of the business
- 44.Whcih of the following is a disadvantage of leasing capital equipment?
- A.
It is cheaper in the long run to buy capital equipment
- B.
Capital equipment needs replacing if technology is changing rapidly
- C.
The management of cash flow is easier with regular repayments
- D.
The firm might not have sufficient funds to purchase the equipment
- 45.______________: Selling of claims over debtors (individuals or organisations who owe the business money) to a specialist firm in exchange for immediate liquidity - only a proportion of the value of the debts will be received as cash
- 46._______________: Bonds issued by companies to raise debt finance, often with a fixed rate of interest (long-term bonds)
- 47.________________: Existing shareholders are given the right to buy additional shares at a discounted price
- 48.______________: Risk capital invested in business start-ups or expanding small businesses, that have good profit potential, but do not find it easy to obtain finances from other sources
- 49.____________ expenditure: Spending on the day-to-day running of a business (e.g. rent, wages and utility bills)
- 50.________________: Individuals or organisations that the business owes money to that needs to be settled within the next twelve months
Back to top