3.1 Source of finance

Which of the following is the most suitable reason for using personal finance?

• Insufficient internal sources of finance
• Insufficient external sources of finance
• There is no interest obligation
• To please the owners (shareholders) of a company

Which of the following is not a feasible source of finance for an ordinary partnership?

• Secured bank loans
• Sale and leaseback
• Debt factoring
• Initial public offering

Advantages of internal finance do NOT include

• Greater flexibility in the use of finance
• Greater choice of finance
• No need to go through administrative procedures
• Tax concessions for the use of internal profit

Which of the following is the most feasible advantage of using internal funds to purchase a new office building?

• Limited impact on the firm's working capital
• Lower level of gearing
• Dilution of ownership
• Increased value of fixed assets

Businesses might choose to use external sources of finance because

• There are no interest charges
• Potential cash flow problems are avoided
• There is insufficient retained profit
• There is an expected rise in interest rates

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

• Overdraft
• Debentures
• Retained profits
• Share capital

Advantages of funding growth through a share issue in all those listed below EXCEPT

• An extra source of finance
• Less financial risks due to the spreading of risks amongst shareholders
• Control of the company is diluted
• It acts as a form of motivation for employees who own shares in the company

Which of the following is a drawback to a business that issues debentures

• Lenders do not have any voting rights
• There is dilution of control
• There is a dilution of ownership
• The value of liabilities increases

Debenture holders

• own a part of the company in which they hold debentures
• Are paid a return from the profits of the company
• Receive payments from companies before any shareholders
• Are represented as current liabilities on the company's balance sheet

Debentures can best be described as a form of

• short-term loan with variable interest rates
• Medium-term loan with variable interest rates
• Long-term loan with a fixed interest rate
• Long term security giving the holder part ownership of the business