Tag: sources of business finance - 2

Questions Related to sources of business finance - 2

The cost of commercial paper to the issuing firm is ________ than the cost of commercial bank loans.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. lower

  2. higher

  3. equal

  4. none of the above

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Correct Option: A
Explanation:

Commercial Paper is issued by one firm to another business firm, Insurance company, pension funds and it is an impersonal method of raising finances. therefore the cost of commercial paper to the issuing firm is lower than the cost of commercial bank loans.

Commercial paper is an __________ method of financing.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. personal

  2. impersonal

  3. nominal

  4. real

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Correct Option: B
Explanation:

Commercial paper is an unsecured promissory note issued by a firm to raise funds for a short period. It is issued by one firm to another business firm, insurance companies, pension funds, and banks. Hence, Commercial Paper is an impersonal method of financing.

Commercial papers represent a new financial instrument issued for the purpose of _______________.

commerce sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Project financing

  2. Working capital

  3. Leasing of plant and equipment

  4. Import of capital goods

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Correct Option: B
Explanation:

Commercial papers are short-term debt, unsecured instrument which is issued by the companies to meet their short term obligations that is to meet their working capital requirements. They are usually issued for 15 days to 1 year.

More than 50% of the shares are held by Company B in Company 
A, thus _________________.

commercial studies sources of business finance - 2 preference shares equity and preference shares equity shares and preference shares

  1. B is the holing company of A

  2. B is a subsidiary company of A

  3. B is both A & B

  4. None of the above

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Correct Option: C
Explanation:

More than 50% of the shares are held by Company B in Company. 
A, thus: B is both the holding company as well as a subsidiary company.

A closely held company is:

commercial studies sources of business finance - 2 preference shares equity and preference shares equity shares and preference shares

  1. When most of the controlling management and shareholders are same.

  2. When only are person has all the shares

  3. A registration of companies

  4. Both A & B

Show answer
Correct Option: A
Explanation:

A closely held corporation is any company that has only a limited number of shareholders; its stock is exchanged only infrequently but is often listed on public exchanges. Most of the controlling management and shareholders are same. 

A shareholder who can vote conditionally is a/an __________.

commercial studies sources of business finance - 2 preference shares equity and preference shares equity shares and preference shares

  1. equity shareholder

  2. preference shareholder

  3. member

  4. none of the above

Show answer
Correct Option: B
Explanation:
The preference shareholders enjoy a preferential position over equity shareholders in two ways, receiving the fixed rate of dividend, receiving their capital after claims of the company's creditors is settled. Preference shareholders generally do not enjoy any voting rights but can vote conditionally.

Preference shares are those which carry the preferential as to ___________________.

commercial studies sources of business finance - 2 preference shares equity and preference shares equity shares and preference shares

  1. The payment of dividend at a fixed rate

  2. The return of capital on winding up of the company

  3. Both (A) & (B)

  4. Either (A) or (B)

Show answer
Correct Option: C
Explanation:
The capital raised by issue of preference shares is called preference share capital. Preference share holders enjoy preferential position over equity in two ways i.e the payment of dividend at a fixed rate & the return of capital on liquidation of company.

Which of the following can be treated as type of shares?

commercial studies sources of business finance - 2 preference shares equity and preference shares equity shares and preference shares

  1. Equity

  2. Preference share

  3. Both (A) & (B)

  4. None of the above

Show answer
Correct Option: C
Explanation:
A business can raise funds from various sources. Each of the source has unique characteristics, raising through shares is a type of source of funds. The capital obtained by issue of shares is known as share capital. Equity shares and preference shares are treated as types of shares. Equity shares are owner's share capital 

Which of the following right may be given to preference shareholders if provided by Articles?

commercial studies sources of business finance - 2 preference shares equity and preference shares equity shares and preference shares

  1. To participate in the surplus profits remaining after payment of equity dividend

  2. To receive arrears of dividend at the time of winding up

  3. To receive premium on redemption of preference shares

  4. All of the above

Show answer
Correct Option: D
Explanation:

If provided by the Articles of Association, the following rights may be given to the shareholders of preferential shares:
To participate in the surplus profits remaining after payment of equity dividend

To receive arrears of dividend at the time of liquidation
To receive premium on redemption of preference shares.

________means the appropriation of a certain number of shares to an applicant who has applied shares in public issue by the board of directors in consultation with stock exchange.

commercial studies sources of business finance - 2 preference shares equity and preference shares equity shares and preference shares

  1. Allotment

  2. Application

  3. Acceptance

  4. Final call

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Correct Option: A
Explanation:
The allotment of shares is the issuing of new shares to the existing shareholders or to third parties. The Directors of a Company may allot shares in the capital of the Company, if they have the authority to do so. Some examples where allotment of shares may be used are as follows:
• To raise money for the Company
• To introduce new investors such as BES investors
• To allow Enterprise Ireland or Enterprise Board Investors
• To convert loans to share capital
• To introduce a golden share
• To put in place a group structure
• To fund a redemption of shares
• To implement a bonus issue of shares
Directors may not allot shares unless they have the power to do so. The Directors power to allot shares expires 5 years from the date of incorporation or 5 years from the last renewal of the power to allot. If the authority to allot shares has not been renewed in the last 5 years then it should be renewed prior to any proposed allotment. This can be renewed by the Members passing an Ordinary Resolution prior to the allotment.
A company must have sufficient unissued authorised share capital before new shares may be allotted by the Directors. If the Company does not have sufficient unissued share capital or is setting up a new share class this must be approved by the members passing a special resolution.
The Memorandum and Articles of Association and any shareholder agreements should be reviewed for regulations on pre-emption rights, unissued share capital and other provisions that may affect the allotment of shares. The shares may be allotted for cash, non-cash and may be allotted at a premium.