Quiz Week 5: Financing Options for Organizations

What is the main advantage of retained earnings?

• Avoids interest payments

• Increases shareholder satisfaction

• Reduces control over the business

• Requires frequent external audits

What is one disadvantage of using retained earnings?

• Increases debt obligations

• Reduces dividend payouts

• Involves interest payments

• Requires government approval

Selling unused assets for financing can lead to which disadvantage?

• Quick cash flow generation

• Reduced operational disruptions

• Loss of key assets

• Improved maintenance costs

What type of financing involves selling ownership shares to investors?

• Retained earnings

• Asset sale

• Equity financing

• Trade credit

Which of the following is an example of external equity financing?

• Bank loan

• IPO

• Retained earnings

What is a key advantage of debt financing?

• Ownership dilution

• No interest payments

• Tax-deductible interest

• High return expectations

What risk does debt financing carry?

• Shareholder control dilution

• Competitive pressure

• Regular interest payments ✓

• Low capital availability

What distinguishes angel investors from venture capital firms?

• Angel investors offer smaller amounts

• Angel investors demand high returns

• Venture capitalists have no management involvement

• Venture capitalists offer grants

What is a disadvantage of government funding?

• Requires repayment

• Restricts usage

• Increases debt

• Dilutes ownership

Which form of financing builds supplier relationships?

• Debt financing

• Trade credit

• Venture capital

• Retained earnings