SUMMATIVE ASSESSMENT BM 3

Which of the following is NOT a valid advantage of internal finance?

• Administrative procedures can be avoided

• Greater choice of sources of finance

• Greater flexibility in the use of finance

• Tax concessions using internal profits

If a product has a selling price of $10, average variable costs of $4, and a sales volume of 1200 per period of time, then the total revenue for this time period is

• $10

• $4 800

• $7 200

• $12 000

Which one of these is NOT capital expenditure?

• Purchasing land for the office

• Purchasing stationery (pens, paper, pencils) for the office

• Purchasing machinery for the factory

• Purchasing vehicles for the office

Debentures can best be described as a form of

• long term loan with a fixed interest rate

• long term security giving the holder part ownership of the business

• medium term loan with fixed interest rates

• short term loan with variable interest rates

Smile Grocers earn $200 000 in sales revenue, has expenses of $80 000, and cost of sales $90 000. What is the value of the firm's gross profit?

• $30 000

• $110 000

• $120 000

• $170 000

Which of the following items DOES NOT appear in a profit and loss account?

• cost of sales

• expenses

• machinery and equipment

• overheads

Identify the running cost (on- going cost) from the options below

• cost of licenses and permits

• deposit for purchasing a building

• interest on bank loans

• purchase of furniture

Total fixed cost/ Quantity produced

is the formula for:

• cost of sales

• total variable cost

• sales

• average fixed cost

Which of the following is NOT a source of external financing for a public limited company?

• Debentures

• overdraft

• retained profit

• share capital

Which option suggests that the business might choose to use external sources of finance?

• there are no interest charges

• there is an unexpected rise in interest rates

• there is insufficient retained profit

• to avoid potential cash flow problems