Sources Of Corporate Finance! Trivia Quiz

Trade credit refers to the credit extended by suppliers to retailers or businesses for the purchase of goods or services. It is a common practice in business transactions where the supplier allows the buyer to pay for the goods at a later date, usually within a specified period of time. This type of credit is specifically related to the purchase of goods for resale, making it the correct answer in this context. Bank overdraft, mortgage finance, commercial bills, and unsecured notes are all different forms of financing, but they are not directly related to credit extended for goods purchased for resale.

The type of company and its location are irrelevant. A high level of security and high-interest rates would not be an advantage to the borrower.

Debt capital is different from equity capital because the costs associated with debt are tax deductible, while the cost of equity is not. This means that a company can deduct the interest payments on its debt from its taxable income, reducing its overall tax liability. On the other hand, the cost of equity, which refers to the return expected by equity investors, is not tax deductible. This fundamental difference in tax treatment makes debt capital more attractive for companies as it provides a tax shield, reducing their overall cost of capital.

Trade credit may or may not have explicit interest conditions attached to amounts not paid on time, but this is not implicit in the original trading terms. Although security or personal guarantees can be negotiated during the approval process, trade credit is usually given unsecured to businesses with an acceptable credit rating. Trade credit is available to both large and small firms and there is no correlation between the size of the business and its relative use of trade credit. Account receivable is not a source of funds for a business.

A sale and leaseback arrangement allows the lessee to obtain cash for an asset by selling it to a lessor and then leasing it back from the lessor. This means that the lessee can still use the asset even though they no longer own it. This arrangement is beneficial for the lessee as it provides them with immediate cash flow while still allowing them to use the asset for their business operations.

Determining revenue expenditure and retained earnings comes under the ambit of the Dividend (or Operating) decision. Disinvestment would be part of the investment decision.

A Bank bill would be a short term source of funds. Debentures are normally secured by a floating charge over the company's assets, whilst the real property is the security given for a mortgage.

Short-term liabilities are contractual claims on a firm's income and assets, meaning they represent obligations that the firm must fulfill. They can arise spontaneously from a firm's operations, such as accounts payable or accrued expenses. They are also sources of funds for a firm, as they provide the necessary capital for day-to-day operations. Short-term liabilities grow in line with an increase in trading operations, reflecting the firm's increased financial obligations. Additionally, they should be used to finance temporary movements in current assets, such as inventory or accounts receivable.

Factoring does not drive increased sales. Factoring costs are significant and surely loss of customer contact is not an advantage to the business.

The most precise term would have to be a leveraged lease, even though it is a form of finance lease.

Accounts Receivable represents uncollected sales. By selling goods on credit, the business is providing a source of finance to the customer and not to itself.

Commercial bills would be a short term source of funds, whilst shares would be classified as equity financing.

An underwriter is not involved in a Bill of Exchange. A Bill of Exchange is a financial instrument used in international trade to facilitate payment between parties. The holder is the person who possesses the bill and is entitled to receive payment. The drawee/acceptor is the party who agrees to pay the bill. The drawer is the party who creates the bill and orders the drawee to pay. The discounter is a financial institution that purchases the bill at a discounted rate. However, an underwriter is not directly involved in the creation, negotiation, or payment of a Bill of Exchange.