AS Level: 29 - Business Finance

What is the primary purpose of start-up capital?

• To buy machinery & equipment
• To pay employee wages
• To cover legal expenses
• To pay dividends to shareholders

Answer explanation

Start-up capital is used to purchase assets and equipment needed to establish the business.

What is working capital used for?

• Long-term expansion
• Buying new machinery
• Day-to-day expenses
• Paying off long-term loans

Answer explanation

Working capital is for daily expenses like wages, inventory, and rent.

What is the formula for working capital?

• Current liabilities - current assets
• Current assets - current liabilities
• Fixed assets - current liabilities
• Fixed assets - long-term debt

Answer explanation

Working capital = current assets - current liabilities.

Which of the following is an internal source of finance?

• Retained profits
• Bank loan
• Trade credit
• Issuing debentures

Answer explanation

Internal sources include retained earnings, sale of assets, and reducing working capital.

A business sells an unused warehouse to raise funds. What source of finance is this?

• Trade credit
• Sale of assets
• Leasing
• Bank overdraft

Answer explanation

Sale of assets generates cash by selling unneeded equipment or property.

A business delays payments to suppliers to improve cash flow. What is this called?

• Trade credit
• Hire purchase
• Debt factoring
• Equity financing

Answer explanation

Trade credit allows businesses to delay payments, improving short-term liquidity.

Which financing method allows a business to sell trade receivables to a third party for immediate cash?

• Bank overdraft
• Leasing
• Debt factoring
• Trade credit

Answer explanation

Debt factoring helps businesses get cash quickly by selling unpaid invoices.

A business rents equipment instead of purchasing it. What is this financing method?

• Hire purchase
• Leasing
• Debt factoring
• Equity financing

Answer explanation

Leasing allows businesses to use assets without owning them, reducing upfront costs.

A company pays for equipment in installments over time, gaining ownership after the final payment. What is this method?

• Leasing
• Hire purchase
• Trade credit
• Bank loan

Answer explanation

Hire purchase lets businesses spread the cost over time while eventually owning the asset.

A business issues shares to raise long-term funds. What type of financing is this?

• Debt finance
• Equity finance
• Trade credit
• Bank overdraft

Answer explanation

Equity finance is when a business sells shares to raise permanent capital.