IB Business And Management Accounts & Finance: 3.1 Sources Of Finance

50 Questions | Total Attempts: 663

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IB Business And Management Accounts & Finance: 3.1 Sources Of Finance

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Questions and Answers
  • 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