Sources of finance

Overdrafts are a good source of long term finance

• True

• False

Answer explanation

Due. to the high daily interest charges this is a good source of short term finance for temporary short falls in cash.

Hire purchase have low interest payments

• True

• False

Answer explanation

It has high interest payments but the advantage it allows a business to use the equipment that they are buying

Hire purchase is a good source of finance to buy

• Vehicles

• House

• Machinery

When a business leases an item, at the end of the contract the business owns the item.

• True

• False

Sale of shares is an example of short term finance

• True

• False

A business has a liquidity problem and they cannot borrow anymore money. What can a business do?

• Apply for a loan

• Sell their assets

• Sell and lease back

Which of the following best describes an overdraft

• Money that is paid back in installments

• It is a flexible source of short term finance

• Money that is borrowed from the business account and has high daily interest charges

The advantage(s) of trade credit is/are

• Businesses can sell the stock before paying their bill

• It means the working capital is not tied up in stock

• If trade credit is paid on time, there are no interest payments

Trade credit is also known as long term liabilities

• True

• False

Which is the following is a disadvantage of retained profit

• High interest payments

• Has to be paid back in installments

• Does not provide enough money to fund expansion