IB Chapter 3.1 & 3.2

What is an example of internal finance?

• Leasing

• Bank loan

• Debt factoring

• Retained profits

Which source of finance is considered short term?

• Overdraft

• Mortgage

• Bank loan

• Hire purchase

What is the payback period for the investment described in the text?

• 1 year 10 months

• 2 years

• 3 years

• 4 years

What is the Average Rate of Return (ARR) for the investment?

• 16.7%

• 20%

• 12.5%

• 25%

Which option is NOT a factor affecting the choice of finance?

• Cost of finance

• Profit margin

• Size and type of business

• Time needed

What is the time period for medium term finance?

• 10 years

• 5+ years

• 1-5 years

• Less than a year

What is the main disadvantage of issuing more shares as a source of finance?

• Interest rate is fixed

• No ownership dilution

• No dividends to pay

• Hidden extra expense

What is the purpose of credit control as a source of internal finance?

• To use saved-up money

• To sell fixed assets

• To make customers pay sooner

• To increase debtors

What is the main advantage of leasing as a source of medium term finance?

• Low cost

• Eventually yours

• Never yours

• Monthly payments

What is the main disadvantage of hire purchase as a source of medium term finance?

• Low cost

• Eventually yours

• Monthly payments

• Very expensive