BH 3.2

Identify the external source of finance.

• Personal savings

• Retained profits

• Sale of assets

• Share capital

Identify which private sector organization business entity can access personal funds?

• Partnerships and sole traders

• Shareholders of privately and publicly held companies

• Shareholders of privately held companies only

• Shareholders of publicly held companies only

Identify the source of finance that relies on small amounts of funds from a large pool of investors for high-risk or innovative business ideas.

• Crowdfunding

• Loan capital

• Microfinance provider

• Share capital

Identify the external finance source that allows delayed payment of 1-2 months for expenditure, improving cash flow in the short-term.

• Credit cards

• Crowdfunding

• Microfinance provider

• Trade credit

The first time a company offers its shares to the general public, it is called a(n) ___________; subsequent offerings of additional shares are called ___________.

• Initial public offering, administrative issuances

• Initial public offering, oversubscriptions

• Initial public offering, share issues

• Share placement, share issues

Identify the longer-term source of finance

• Business angel

• Overdraft

• Sale of assets

• Trade credit

Identify the source of finance that allows a firm to temporarily use more money than their bank account holds, incurring higher rates of interest charges.

• Crowdfunding

• Overdraft

• Short-term loan

• Trade credit

Which of the following is an advantage of using an overdraft facility?

• Flexibility in the event of cash flow problems

• Interest rate benefits

• Long-term funding

• All of the above

Identify the incorrect statement about publicly held companies.

• An existing publicly held company can raise more finance by opting for an initial public offering (IPO)

• Shareholders can choose to sell shares and earn profits on their sale like any other asset

• The actions of a company will influence the perceived value of the shares

• The management team has a responsibility to protect shareholder value

Identify the correct benefit of using loan capital as a source of finance.

• It improves the level of gearing

• Low interest repayments

• The collateral required to secure loan capital

• The potential amount of money available