Tag: sources of business finance - 2

Questions Related to sources of business finance - 2

Preference shares carry preferential rights with respect to _____________.

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

  1. Payment of dividend

  2. Repayment of capital

  3. Both (A) & (B)

  4. Neither (A) nor (B)

Show answer
Correct Option: C
Explanation:
As per companies act, 2013, preference share capital is defined as instruments which have preferential right with respect to dividend payment (fixed/ on percentage basis) and repayment of capital during winding up of the company.

Match List I with List II and select the correct answer using the codes given below the lists.
List I                                                       List II
A. Brand Equity                                1. Tangible
B. Plant & Machinery                       2. Current
C. Advances to suppliers                 3. Intangible
D. Deferred revenue expenditure    4. Fictitious

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

  1. A-3, B- 1, C-4, D-2

  2. A-3, B- 1, C-2, D-4

  3. A-1, B- 3, C-2, D-4

  4. A-1, B- 3, C-4, D-2

Show answer
Correct Option: B
Explanation:
   LIST 1  LIST 2
 A  Brand Equity  Intangible
 B  Plant & Machinery    Tangible
 C  Advances to suppliers  Current
 D  Deferred revenue expenditure  Fictitious

A project has an equity beta of 1.2 and debt beta of 0. This project is finance by combination of $30\%$ debt and $70\%$ equity, then project beta is _______.

organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

  1. 0

  2. 1

  3. 0.84

  4. 0.64

Show answer
Correct Option: C
Explanation:

$\beta _p$ = $\frac{{\beta equity X E}}{D + E}$ + $\frac{{\beta debt X D}}{D + E}$.

Assets of the company belongs to the _______________.

organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

  1. company

  2. share holders

  3. members

  4. promoters

Show answer
Correct Option: B
Explanation:
The shareholders are the owners of the company while the Board of Directors is the chief managing body elected by the shareholders. The capital of the company is divided into smaller parts called ‘shares’. Thus the assets of the company belongs to share holders.

Tick mark the correct answer.
Identify the source of finance that does not pose a burden on a company's finance.

organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

  1. Debentures

  2. Public deposit

  3. Loans from financial institutions

  4. Retained earnings

Show answer
Correct Option: D

Identify the limitation of retained earnings ___________________.

organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

  1. It is an uncertain source of funds as the profits of business are fluctuating.

  2. It does not create any charge on the assets of the firm while providing funds.

  3. It is a convenient and continuous source of funds.

  4. It needs to promote the sales of an organisation.

Show answer
Correct Option: A
Explanation:
Limitation of retained earnings:It is an uncertain source of funds as the profits of business are fluctuating. Retained earning refers to the accummulated net income of a company or a business organization.

Retained earnings does not involve any explicit cost in the form of ________.

organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

  1. Interest

  2. Dividend

  3. Floatation cost

  4. All of the above

Show answer
Correct Option: D
Explanation:

Retained earning refers o the accumulated net income of a company or a business organization.Retained earnings does not involve any explicit cost in the form of interest, dividend and floating cost.

The opportunity cost associated with _____ is not recognized by many firms.

organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

  1. Trade credit

  2. Debentures

  3. Retained earning

  4. Preference shares

Show answer
Correct Option: C
Explanation:

Retained earning refers o the accumulated net income of a company or a business organization.The opportunity cost associated with retained earning is not recognized by many firms. The opportunity cost refers to the cost of letting go the next best alternative use.

 Excessive ploughing-back may cause dissatisfaction among the shareholders as they would get _______ dividends.

organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

  1. Higher

  2. Lower

  3. No

  4. Constant

Show answer
Correct Option: B
Explanation:

Excessive ploughing-back may cause dissatisfaction among the shareholders as they would get lower dividends. Excessive ploughing back of profits will result in over capitalization which will in turn lead to decrease in ROI.

The funds available with a company after paying all claims including tax and dividend is called _______.

organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

  1. new profit

  2. net operating profit

  3. capital profit

  4. retained earnings

Show answer
Correct Option: D
Explanation:

A company generally does not distribute all its earnings among the shareholders as dividends. A portion of the net earnings may be retained in the business for use in the future. This is known as retained earnings. It is a source of internal financing or self-financing or ‘ploughing-back of profits’.