IB DP BM Exam Finance Sources of Finance

What is capital expenditure?

• Spending on short-term needs or daily running costs of the business

• Spending on long-term needs or fixed assets

• Funds/finance from within the business

• Funds/finance from outside the business

What is the advantage of personal savings as a source of finance?

• The business does not have to give it back

• It can be used on a regular basis

• It does not have to pay interest

• It is usually enough to finance big projects

What is retained profit?

• Part of the profit given to shareholders as dividends

• Part of the profit kept by the company to be reinvested

• The profit made from selling unwanted assets

• The profit received from external sources of funds

What is the disadvantage of using personal savings as a source of finance?

• The business has to give it back

• It can only be used once

• It usually requires paying interest

• Shareholders may be unhappy with low dividends

What is the advantage of selling unwanted assets as an internal source of funds?

• It is a quick way to receive finance

• It does not require paying interest

• It can be used multiple times

• It is suitable for short-term needs

What is share capital?

• The money raised from the sales of shares

• The money borrowed from financial institutions

• The credit received from suppliers

• The funds provided by the government

What is the disadvantage of share capital?

• It has to be redeemed/repaid by the business

• It can only be used once

• It leads to dilution of share ownership

• It requires paying high interest rates

What is an advantage of an overdraft as a source of funds?

• It is a quick source of money

• The interest is only charged for the period when the business borrows money

• The bank cannot ask for the money back

• It is suitable for long-term needs

What is trade credit?

• A credit from the government or foundation

• A credit from the bank

• A credit from shareholders

• A credit from the supplier

What is the main advantage of grants as a source of finance?

• They do not have to be given back

• They are easy to receive

• They have no conditions attached

• They can be used for short-term needs