Ch19. Business finance: needs and sources

Businesses need finance for different reasons. Payment of day-to-day expenses is one of these reasons. What is this finance called?

• Capital expenditure

• Start-up capital

• Working capital

• Cash flow

Abel and Sonya are in partnership. They own a pizza takeaway business. They need $10 000 to purchase new ovens so that they can expand their business. They rent their premises. Which of the following sources of finance should the partners use to finance the purchase of their new ovens?

• Hire purchase

• Sale of non-current assets

• Share issue

• Debenture

Which of the following sources of finance for a non-current asset would not result in a business owning said asset?

• Mortgage

• Leasing

• Hire purchase

• Long-term bank loan

Which of the following is an advantage of equity financing?

• It never has to be repaid

• It does not change the ownership of the business

• Interest rates are very low

• Finance can be raised very quickly

ABC Ltd needs to raise $100 000 to replace machinery with the latest technology. An extract from its statement of financial position is shown in the image.

Why might ABC Ltd find it difficult to raise the $100 000 it needs?

• The amount it needs is very high

• Private limited companies cannot raise finance through the issue of shares

• Lenders might consider the company to be high risk

• ABC cannot provide security against the value of the loan

An internal source of finance that is generated from business activity

• Retained profit

• Share issue

• Overdraft

An external source of finance that is not available to unincorporated businesses

• Retained profit

• Share issue

• Overdraft

An external source of finance often used to meet short-term cash shortages

• Retained profit

• Share issue

• Overdraft

An external source of finance that involves selling trade receivables

• Debt factoring

• Mortgage

• Debenture

A long-term external source of finance used to purchase land or buildings

• Debt factoring

• Mortgage

• Debenture