3.2 Sources of finance SDN

What are internal sources of finance?

• Sources that come from outside the organization

• Sources that come from within the organization

• Sources that only large corporations can access

• Sources that require repayment to third parties

Why might a sole trader prefer to use personal funds to finance their business?

• It's the only option available to them

• It doesn't need to be repaid and incurs no interest

• It's always sufficient for business needs

• It guarantees business success

What is a potential drawback of using personal funds for business financing?

• It's too easy to obtain

• It requires extensive paperwork

• The business owner risks losing their life savings if the venture fails

• It always results in high tax payments

Why might shareholders be dissatisfied with a company's decision to use retained profits for business growth?

• It increases the company's debt

• It reduces the dividends paid out to them

• It always leads to business failure

Which of the following is an example of a non-current asset?

• Cash

• Inventory

• Factory building

• Short-term investments

What advantage do internal sources of finance generally have over external sources?

• They provide larger amounts of funding

• They don't need to be repaid and don't incur interest

• They're easier to obtain for new businesses

• They always lead to business growth

Which of the following is NOT considered an external source of finance according to the IB Business Management syllabus?

• Share capital

• Loan capital

• Retained profits

• Trade credit

What is the term for when a limited liability company sells its shares for the first time on a public stock exchange?

• Share issue

• Initial public offering (IPO)

• Stock flotation

• Equity release

What is a key advantage of share capital as a source of finance?

• It must be repaid within a set time period

• It does not dilute ownership of the company

• It is permanent capital that does not need to be repaid

• It guarantees a fixed return to investors

Which of these is NOT typically considered loan capital?

• Bank loans

• Mortgages

• Debentures

• Trade credit