Sources of Finance Quiz

What is a disadvantage of using angel investors for GreenSphere Innovations?

• High interest rates

• Dilution of ownership

• Difficulty raising large sums

• Requires collateral

Which option would likely require GreenSphere Innovations to create a strong marketing campaign?

• Bank loan

• Angel investors

• Crowdfunding

• Venture capital

Why might GreenSphere Innovations choose a bank loan over angel investors?

• Retains full ownership of the business

• Easier to manage repayment schedules

• Lower interest rates than angel investors

• Offers access to expert advice

Precision Gears Ltd. is considering retained profits as a source of finance. What is a key advantage of retained profits?

• Avoids diluting ownership

• Has no opportunity cost

• Minimizes financial risk

• Reduces taxes

What is a drawback of using retained profits for Precision Gears Ltd.?

• Requires payment of high interest

• May reduce liquidity for future needs

• Dilutes shareholder control

• Decreases creditworthiness

Issuing shares would:

• Ensure complete control for Precision Gears Ltd.

• Provide large amounts of finance without repayment obligations

• Increase the firm's retained profit reserves

• Lower the firm’s debt-to-equity ratio

A key reason why CloudPro Solutions might choose venture capital is:

• Access to high levels of funding and strategic advice

• Avoidance of equity dilution

• Lower overall financial risk

• Minimal interference from investors

What is a drawback of using corporate bonds as a source of finance for CloudPro Solutions?

• Requires the sale of equity

• Reduces the company’s cash flow due to regular interest payments

• Investors gain voting rights in decision-making

• Limited funds can be raised

What factor would most likely influence CloudPro Solutions’ decision to use retained earnings?

• The need for high levels of external expertise

• The availability of sufficient profit reserves

• The dilution of control in the business

• The company’s focus on short-term profitability

GreenSphere Innovations and Precision Gears Ltd. differ in their sources of finance because:

• GreenSphere Innovations has access to corporate bonds

• Precision Gears Ltd. has more options for internal financing

• GreenSphere Innovations requires venture capital for growth

• Precision Gears Ltd. relies entirely on crowdfunding