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Worksheets3.1 Source of finance
Total questions: 20
Worksheet time: 7mins
Name
Class
Date
1.
Which of the following is the most suitable reason for using personal finance?
a)
Insufficient internal sources of finance
b)
Insufficient external sources of finance
c)
There is no interest obligation
d)
To please the owners (shareholders) of a company
2.
Which of the following is not a feasible source of finance for an ordinary partnership?
a)
Secured bank loans
b)
Sale and leaseback
c)
Debt factoring
d)
Initial public offering
3.
Advantages of internal finance do NOT include
a)
Greater flexibility in the use of finance
b)
Greater choice of finance
c)
No need to go through administrative procedures
d)
Tax concessions for the use of internal profit
4.
Which of the following is the most feasible advantage of using internal funds to purchase a new office building?
a)
Limited impact on the firm's working capital
b)
Lower level of gearing
c)
Dilution of ownership
d)
Increased value of fixed assets
5.
Businesses might choose to use external sources of finance because
a)
There are no interest charges
b)
Potential cash flow problems are avoided
c)
There is insufficient retained profit
d)
There is an expected rise in interest rates
6.
Which of the following is NOT a source of external financing for a public limited company
a)
Overdraft
b)
Debentures
c)
Retained profits
d)
Share capital
7.
Advantages of funding growth through a share issue in all those listed below EXCEPT
a)
An extra source of finance
b)
Less financial risks due to the spreading of risks amongst shareholders
c)
Control of the company is diluted
d)
It acts as a form of motivation for employees who own shares in the company
8.
Which of the following is a drawback to a business that issues debentures
a)
Lenders do not have any voting rights
b)
There is dilution of control
c)
There is a dilution of ownership
d)
The value of liabilities increases
9.
Debenture holders
a)
own a part of the company in which they hold debentures
b)
Are paid a return from the profits of the company
c)
Receive payments from companies before any shareholders
d)
Are represented as current liabilities on the company's balance sheet
10.
Debentures can best be described as a form of
a)
short-term loan with variable interest rates
b)
Medium-term loan with variable interest rates
c)
Long-term loan with a fixed interest rate
d)
Long term security giving the holder part ownership of the business
11.
Which of the following is NOT a clear difference between debenture holders and shareholders of a company
a)
Voting rights in the company
b)
ownership of the company
c)
Interest and dividends as a form of financial return
d)
Impact on the company's working capital
12.
Which of the following is the least likely source of funds for a non-profit organization?
a)
Fund-raising events
b)
Charitable donations
c)
Brand recognition
d)
Sponsorship deals
13.
Which of the following best describes hire purchase?
a)
Hiring of equipment for a period of time
b)
Repaying loans by making fixed regular payments
c)
Hiring out equipment as a source of finance
d)
Differs from leasing in that ownership occurs with the last instalment
14.
The contract used to raise finance by selling the freehold of an asset and then renting it back immediately on a long-term basis is known as
a)
Working capital
b)
Sale and leaseback
c)
Fixed assets
d)
Trade creditors
15.
Which statement does NOT apply to the use of sale and leaseback?
a)
The firm can continue to use the asset it has sold and leased back
b)
The value of fixed as remains unchanged since the firm keeps use of the asset
c)
The firm can carry on trading as if nothing has happened
d)
The finance released through the sale improves the firm's liquidity position
16.
The debt factoring service that allows the client to be protected against bad debts is known as
a)
Overdraft
b)
Non-recourse factoring
c)
Collateral
d)
Discount factor
17.
Mei Ling Photography Corp. has a cash flow deficit of $85, 000. lf it has debtors to the value of $100,00 on its balance sheet, what is the maximum charge that a factoring service could impose to make this source of finance feasible?
a)
5%
b)
10%
c)
15%
d)
20%
18.
Which source of finance below would best be described as loan capital?
a)
Ordinary share capital
b)
Equity finance
c)
Debt factoring
d)
Debentures
19.
There must be sufficient finance to pay for the daily running of the business. This money is known as
a)
Working capital
b)
Work-in-progress
c)
Retained profit
d)
Buffer stocks
20.
Which of the following is a disadvantage of leasing capital equipment?
a)
It is cheaper in the long run to buy capital equipment
b)
The firm might not have sufficient funds to purchase the equipment
c)
Capital equipment needs replacing if technology is changing rapidly
d)
The management of cash flow is easier with regular repayments
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