Biz L22 Business Finance - Needs and Sources

Which of the following is not a reason why a business needs money?

• To start the business

• To expand the business

• To deal with a negative cash-flow problem

• To increase prices of its products

When a business expands it usually needs finance for which one of the following reasons?

• To pay for increased working capital

• To pay back shareholders

• To pay the government a grant

• To provide a loan to the bank

Which of the following is an example of internal finance for a limited company?

• Selling shares

• Selling debentures

• Obtaining a loan

• Selling off inventories

Which of the following is an example of external finance for a limited company?

• Retained profits of the company

• Selling shares

• Sale of assets no longer used in the business

• Selling off inventories

An advantage that an overdraft has over a bank loan is that:

• it has a fixed rate of interest

• it is paid back over a fixed time period

• no dividends have to be paid to shareholders as with a loan

• the size of the overdraft can vary with the needs of the business

An advantage that share capital (equity capital) has over long-term loans is that:

• the capital never has to be repaid

• the rate of interest on shares is fixed

• the balance of control in the business will change if more shares are issued

• dividends are paid on long term loans but not on shares

Which one of the following is an advantage of micro-finance for an entrepreneur setting up a business?

• There are no interest costs so the business will be more profitable

• Very large loans can be obtained

• The finance does not have to be repaid

• Finance is provided to people who could not usually obtain a bank loan

An advantage to a business of leasing computers rather than buying them outright is that:

• the loan never has to be repaid

• the computers will never go out of date

• the total cost of leasing is always cheaper than buying the computers

• the company does not have to find a large cash sum to buy the computers

Which of the following business decisions is likely to need long-term finance?

• Increasing inventories of goods for the summer season

• Hiring a car for the sales manager

• Building a new factory

• Paying creditors for goods supplied

A flower seller plans to increase inventories of plants before a major festival. Which of the following is the most likely source of finance?

• Bank overdraft

• Leasing

• Share issue

• Debentures