Financing Quiz

What is the difference between debt financing and equity financing?

• Debt financing does not require repayment, while equity financing does

• Debt financing and equity financing are the same thing

• Debt financing involves giving away ownership of the company, while equity financing involves borrowing money with interest

• Debt financing involves borrowing money that must be repaid with interest, while equity financing involves selling a portion of the company to investors in exchange for capital.

Explain the concept of working capital and its importance in financing.

• Working capital is the funds needed for the day-to-day operations of a business, including managing short-term liabilities and meeting operational expenses. It is important in financing because it ensures that a company has enough liquidity to cover its short-term obligations and maintain smooth operations.

• Working capital is not important in financing as it only deals with short-term obligations.

• Working capital is the same as fixed capital and has no impact on a company's operations.

• Working capital is the funds used for long-term investments and expansion.

What are the advantages and disadvantages of using internal sources of financing?

• Advantages include high cost and limited control, while disadvantages may include unlimited funds and no strain on cash flow.

• Advantages include limited funds and potential strain on cash flow, while disadvantages may include lower cost and greater control.

• Advantages include greater control and potential strain on cash flow, while disadvantages may include higher cost and unlimited funds.

• Advantages include lower cost and greater control, while disadvantages may include limited funds and potential strain on cash flow.

Discuss the concept of financial leverage and its impact on a company's financing decisions.

• Financial leverage is the use of equity to finance a company's operations and investments. It reduces the risk for shareholders.

• Financial leverage refers to the use of debt to finance a company's operations and investments. It has no impact on the risk of financial distress.

• Financial leverage refers to the use of debt to finance a company's operations and investments. It can magnify returns for shareholders but also increases the risk of financial distress.

• Financial leverage is the use of debt to finance a company's operations and investments. It always leads to increased returns for shareholders.

Explain the role of venture capital in financing new businesses.

• Venture capital provides loans to new businesses

• Venture capital only invests in well-established companies

• Venture capital does not require equity ownership in exchange for funding

• Venture capital provides funding to start-up and early-stage companies in exchange for equity ownership.

What are the key factors to consider when choosing between different sources of financing?

• Color of the financing company's logo

• Interest rates, repayment terms, collateral requirements, and impact on financial health

• Distance from the financing company's office

• Number of employees at the financing company

Discuss the concept of cost of capital and its significance in financing decisions.

• Cost of capital is the interest rate charged by banks for loans

• Cost of capital is the required rate of return that a firm must earn on its investments to maintain the market value of its stock.

• Cost of capital is the total expenses incurred by a firm in a financial year

• Cost of capital is the amount of money a firm has in its reserve for future investments

What are the main types of financial institutions that provide financing to businesses?

• Commercial banks, credit unions, and investment banks

• Payday lenders, stockbrokers, and mortgage companies

• Savings and loan associations, venture capital firms, and mutual funds

• Insurance companies, pawn shops, and hedge funds

Explain the concept of capital structure and its impact on a company's financing strategy.

• Capital structure is the mix of a company's equity only. It impacts a company's financing strategy by increasing its financial flexibility.

• Capital structure is the mix of a company's long-term debt, specific short-term debt, common equity, and preferred equity. It impacts a company's financing strategy by influencing its cost of capital, financial flexibility, and risk profile.

• Capital structure is the mix of a company's long-term debt only. It impacts a company's financing strategy by reducing its risk profile.

• Capital structure is the mix of a company's short-term debt only. It impacts a company's financing strategy by reducing its cost of capital.

Discuss the importance of financial planning in securing financing for a business.

• Financial planning is not important for securing financing

• Financial planning is only important for personal finances, not for business financing

• Lenders and investors are not concerned with the business's level of preparation and organization

• Financial planning is important for determining the amount of financing needed, creating a roadmap for the use of funds, and demonstrating to lenders or investors that the business is well-prepared and organized.