GCSE Business Finance Quiz 2

A business chooses retained profit to fund a new project. What is a possible opportunity cost of this decision?

• Paying interest on a loan

• Missing the chance to reinvest profits elsewhere

• Increasing its overdraft

• Gaining additional cash inflow

Why might a start-up business struggle to access a bank loan?

• Too many employees

• No access to e-commerce

• Lack of trading history and security

• High levels of retained profit

Which of the following best explains why hire purchase could be risky for a business?

• It reduces tax liability

• The business does not fully own the asset until all payments are made

• It increases brand loyalty

• It leads to reduced productivity

A café uses trade credit from suppliers. What is the main risk of this approach?

• It reduces future demand

• It increases long-term asset value

• It damages supplier relationships if payments are late

• It improves customer service

A business shows strong profits on paper but has little available cash. Why might this happen?

• Customers are paying early

• All sales are made in cash

• Too much money is tied up in unsold stock or unpaid invoices

• It is using retained profit

Which action would not typically solve a short-term cash flow issue?

• Applying for an overdraft

• Rescheduling payments

• Selling shares

• Reducing unnecessary expenses

A business’s net cash flow for a month is –£2,000. What does this mean?

• Its profit is £2,000

• Its inflows were lower than its outflows by £2,000

• It has no liabilities

• It is not generating any sales

Why might a profitable business have a negative closing balance in its cash flow forecast?

• Its bank rejected its profit margin

• It bought too many shares

• Its outflows exceeded inflows during that period

• It repaid all liabilities

Which situation would most likely require long-term finance?

• Buying stock for the Christmas period

• Purchasing a new delivery van

• Paying a phone bill

• Hiring a part-time worker for the summer

What would be a suitable disadvantage of using retained profit to fund expansion?

• It increases debt

• It reduces future profit margins

• It limits dividend payments to shareholders

• It requires a loan application