Business Finance : Quiz

The correct answer is "Money raised from within the organization and/or outside the organization." This answer encompasses all possible sources of finance, whether it is generated internally or obtained from external sources. It allows for flexibility in financing options, as organizations can choose to rely solely on internal funds or seek external funding through loans, investments, or other means. This answer acknowledges that organizations have the potential to raise money from both within and outside their own operations.

The financing method described in the question, where small amounts of money are collected from a large number of individuals to finance a business venture, is commonly known as crowd funding. In crowd funding, individuals contribute small amounts of money towards a project or business idea, usually through an online platform. This method allows entrepreneurs to access capital from a wide pool of potential investors, often without the need for traditional financial institutions or venture capitalists. Microfinance, on the other hand, typically involves providing small loans or financial services to individuals or small businesses in low-income communities. Venture capital refers to investments made by professional investors in high-potential startups, while grants are non-repayable funds provided by organizations or governments to support specific projects or initiatives.

Sale and lease back refers to a financial arrangement where a company sells its assets, such as machinery, to a third party and then leases it back from them. In this case, Mr. Y is planning to sell some machinery and immediately rent it back. This allows the company to free up cash by selling the assets while still being able to use them for their business operations. Therefore, the correct answer is sale and lease back.

External sources of finance refer to funds that are obtained from outside the organization. Leasing, debentures, and venture capital are all examples of external sources of finance as they involve obtaining funds from external parties such as leasing companies, investors, or financial institutions. However, the reduction of working capital is not a source of finance but rather a strategy to optimize the utilization of existing working capital within the organization. It involves minimizing current assets or increasing current liabilities to improve cash flow and operational efficiency.

Short-term finance refers to funds that are borrowed or invested for a relatively brief period, typically less than one year. This type of finance is used to meet immediate business expenses, such as covering operational costs, purchasing inventory, or managing cash flow. It is characterized by its short repayment period, usually within one year, and is often obtained through sources like short-term loans, trade credit, or lines of credit. This definition aligns with the answer choice "Money which should be re-paid within one year."

The main benefit of using trade credit rather than a loan is that it is interest-free. This means that the business does not have to pay any additional cost for borrowing the money, which ultimately helps in saving money and improving the cash flow of the business. Additionally, trade credit is easier for a new business to obtain compared to a loan, but it does not guarantee any discounts received.

The company is using hire purchase because they are making a down payment and then paying the remaining balance in installments with interest. This indicates that they are purchasing the projector on credit and will own it once all the payments are made. Leasing and sale and lease back involve renting the projector rather than purchasing it, so they do not apply in this situation.

Issuing shares to the public has several advantages, such as not requiring repayment, no interest payment, and the ability to raise a large amount of capital. However, the shareholdings of existing shareholders will not remain unchanged when shares are issued to the public. This is because new shareholders will acquire a portion of the company's ownership, diluting the ownership percentage of existing shareholders. Therefore, the statement that "Shareholdings of the existing shareholders will be unchanged" is not an advantage of issuing shares to the public.

Long-term finance refers to the use of credit that has a maturity period greater than one year. This means that the funds borrowed will be repaid over a period of time that exceeds one year. This type of financing is typically used for projects or investments that require a longer time to generate returns or to be completed. It allows businesses to access larger amounts of capital and spread out the repayment over a longer period, which can be beneficial for managing cash flow and achieving long-term goals.

In order to raise finance after changing its legal structure to a public limited company, Divine Fresh Lanka can issue debentures. Debentures are long-term debt instruments that are issued by companies to raise funds from the public. By issuing debentures, Divine Fresh Lanka can attract investors who are willing to lend money to the company in exchange for regular interest payments and the repayment of the principal amount at maturity. This can provide an additional source of finance for the company to support its operations and growth.