Sources of Funds in Finance

Which of the following is a characteristic of equity financing?

• It involves borrowing money that must be repaid with interest.

• It involves selling ownership shares in the company.

• It does not dilute ownership of the company.

• It is a short-term source of funds.

What is a primary advantage of debt financing?

• It does not require repayment.

• Interest payments are tax-deductible.

• It dilutes ownership of the company.

• It is not subject to interest rate fluctuations.

Retained earnings are:

• Funds borrowed from financial institutions.

• Profits that are reinvested in the business.

• Funds raised through issuing new shares.

• Dividends paid to shareholders.

Preferred stock typically has which of the following features?

• Voting rights in the company.

• Fixed dividend payments.

• Higher claim on assets than debt holders.

• No dividend payments.

Which of the following is considered an internal source of funds?

• Issuing bonds.

• Bank loans.

• Retained earnings.

• Selling new shares.

Equity financing is often preferred by companies because:

• It does not require interest payments.

• It increases the company's debt burden.

• It must be repaid within a short period.

• It is less risky than debt financing.

Which of the following is a disadvantage of debt financing?

• It dilutes ownership of the company.

• It requires regular interest payments.

• It does not provide tax benefits.

• It is not available to small businesses.

Retained earnings are often used for:

• Paying off long-term debt.

• Distributing dividends to shareholders.

• Financing new projects and expansion.

• Buying back company shares.

Preferred stockholders typically have:

• Higher voting rights than common stockholders.

• Priority over common stockholders in dividend payments.

• No claim on company assets.

• The same rights as bondholders.

Internal sources of funds are generally considered:

• More expensive than external sources.

• Less reliable than external sources.

• More flexible and less risky.

• Only suitable for large companies.