Finance Sources Quiz

What is debt financing?

• Debt financing involves giving away ownership stakes in the company to raise capital.

• Debt financing involves borrowing money from external sources to fund operations or expansions.

• Debt financing refers to using personal savings to fund business operations.

• Debt financing is a process of generating revenue through sales of products or services.

Give an example of equity financing.

• Receiving a grant from the government

• Selling shares of ownership in a company to investors.

• Borrowing money from a bank

• Using personal savings to fund a business

What are internal sources of finance?

• Retained earnings, sale of assets, personal savings of the owner

• Bank loan, government grant, crowdfunding

Name one external source of finance.

• Personal savings

• Venture capital

• Credit card

• Bank loans

Explain short-term financing.

• Short-term financing involves long-term borrowing

• Short-term financing is used for financial requirements lasting more than a year

• Short-term financing does not involve borrowing money

• Short-term financing involves borrowing money or obtaining funds for a short period, typically less than a year, to address immediate financial requirements.

Describe long-term financing.

• Long-term financing is used for daily operational expenses.

• Long-term financing involves borrowing money for a period of less than one year.

• Long-term financing refers to short-term investments only.

• Long-term financing is funding that is borrowed or invested for a period longer than one year.

What are the advantages of debt financing?

• Debt financing does not require repayment

• Debt financing does not impact credit rating

• Debt financing provides leverage for growth and offers tax benefits.

• Debt financing leads to decreased control over the business

What are the disadvantages of equity financing?

• Increased control over business operations, higher interest rates

• Loss of control and decision-making power, sharing profits with investors

• Guaranteed return on investment, limited access to capital

• No need to repay funds, reduced financial risk

How can a company use retained earnings as an internal source of finance?

• By borrowing money from external sources

• By increasing executive salaries

• By reinvesting profits back into the business rather than distributing them to shareholders.

• By reducing the selling price of products

What is a common form of external source of finance for startups?

• Venture capital funding

• Crowdfunding

• Personal savings

• Bank loan