Chapter 21: Raising Business Finance

Which of the following is NOT a reason why a business needs money?

• to start the business
• to expand the business
• to deal with a negative cash-flow problem
• to increase prices of its products

Which of the following is an example of revenue expenditure?

• paying staff wages
• buying a new truck
• extending the factory
• purchasing a machine

Which of the following is an example of internal finance for a limited company?

• selling shares
• selling debentures
• obtaining a loan
• reducing stock levels

Which of the following is an example of external finance for a limited company?

• retained profits of the company
• selling shares
• sale of assets no longer used in the business
• reducing stocks

An advantage that an overdraft has over a bank loan is that:

• it has a fixed rate of interest
• it is paid back over a fixed time period
• no dividends have to be paid to shareholders as with a loan
• the size of the overdraft varies with the needs of the firm

An advantage that share capital (equity capital) has over long-term loans is that:

• the capital never has to be repaid
• the rate of interest on shares is fixed
• the balance of control in the business will change
• dividends are paid before tax

An advantage to a business of leasing computers rather than buying them outright is that:

• the loan never has to be repaid
• the computers will never go out of date
• the total cost of leasing is less than buying the computers
• it doesn't have to find a large cash sum to buy computers

Which of the following business decisions is likely to need long-term finance?

• increasing stocks of goods for the summer season
• hiring a car for the sales manager
• building a new factory
• paying creditors for goods supplied

A flower seller plans to increase stocks of plants. Which is the most likely source of finance?

• bank overdraft
• leasing
• share issue
• debentures

Which sources of finance is most likely to be used by a firm planning to takeover another firm?

• bank overdraft
• leasing
• share issue
• trade credit