Week 6 Quiz

What type of finance is trade credit?

• Equity

• Long-term debt

• Short-term debt

• Medium-term debt

Which of the following is an establishment cost?

• Wages

• Advertising

• Phone Connection

• Electricity Charges

Answer explanation

Key word: CONNECTION. This is a cost associated with establishing the business as it is only needed to happen once. Al other options are ongoing costs.

How can a business achieve a price/cost advantage?

• By achieving economies of scale

• By employing the most skilled people

• By paying less than minimum wage

• By delaying the purchase of new technology

Answer explanation

Economies of scale occurs when a proportionate saving in costs gained by an increased level of production.

A business may use a lease because:

• . 

  This allows a business to acquire assets to keep by paying for it over a period

• This allows them to use an asset when they want

• They can use it without paying for it

• This allows a business to use assets by paying for it over a period

If  a bank thinks lending money  to a certain business is risky it will:

• Charge a lower interest rate

• Charge a higher interest rate

• Send the business packing

• Think about it

Share capital is

• Money given to a company by shareholders in return for a stake in the business

• Business borrowing capital from a financial institution

• Capital shared amongst owners

• Capital shared with shareholders

A 'Debenture' is?

• A long term loan

• A short term loan

• an internal source of finance

11. Under the factoring arrangement, the factor _____.

• Produces and distributes the goods or services

• Makes the payment on behalf of the client

• Collects the client’s debt or account receivables

• Transfer the goods from one place to another

What type of finance is an overdraft?

• Long term debt

• Short Term Debt

• Equity

• Private Equity

Which of the following is an advantage of using retained profits as a source of finance?

• Access to a large amount of capital

• Maintaining control fo the business

• Interest rates are low

• Loss of control of business decisions