Unit 3.1 Sources of finance

Capital expenditure is money spent to acquire short term assets in a business.

• True

• False

Revenue expenditure is money spent on the day to day running of the business with expenses that include rent, wages, raw materials, insurance and fuel.

• True

• False

Internal sources of finance are obtained inside the business include, personal loans, retained capital and venture capital.

• True

• False

External sources of finance are obtained outside the business.

• True

• False

Short term finance last for more than a year provides a business with its need working capital.

• True

• False

Medium term finance lasts from more than one year to about five years is mostly used to purchase assets scch as equipment or vehicles.

• True

• False

Long term finance with a duration of more than five years to thirty years is funding obtined for the purpose of purchasing long term fixed assets or other expansion requirements of a business.

• True

• False

In deciding on the appropriate source of finance to use businesses need to consider the purpose of the funds, costs, flexibility, their status and size, amount required, gearing and the state of external environment.

• True

• False

Debt factoring is source of finance that allows a firm to use an asset without having to purchase it by cash.

• True

• False

Venture capital is:

• Financial capital provided by investors (specialist organizations or investment banks) to high-risk, high-potential start up firms or small businesses.

• Highly affluent individuals who provide financial capital to small start-ups or entrepreneurs in return for ownership equity in their businesses.