Tag: sources of business finance
Questions Related to sources of business finance
The cheapest source of finance is _____.
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Debenture
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Equity share capital
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Preference share
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Retained earning
Retained Earnings
Current assets of a business firm should be financed through __________.
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Current Liability Only
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Long Term Liability Only
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Partly from both types, i.e., long and short term Liabilities
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None of the Above
This limit of overdraft is granted purely on the basis of credit-worthiness of the borrower.
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True
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False
True.
Short-term planning covers short-term financial plan called budget.
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True
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False
Companies develop short-term financial plans to meet budget and investment goals within one fiscal year. These plans have a higher degree of certainty compared to long-term plans. Short-term plans often are amended as financial and investment goals change. Businesses and individuals alike use short-term plans to manage short-term cash deficits
Preference shares are helpful for raising funds for a long period since they do not create any charge over the assets.
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True
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False
The issue of preference shares does not restrict the company's borrowing power, at least in the sense that preference share capital is not secured against assets in the business.
Which of the following is/are not the reason(s) of short term finance?
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No longer term commitment with this type of loan.
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Short term loans are available quickly.
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Short term loans could cost less.
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All of the above
- Short term loans are available quickly. One of the defining features of short term loans is that you can borrow them fast – sometimes even on the same day or within 24 hours. This makes financing, such as payday loans, ideal if you find yourself in a situation where you need cash fast.
- There is no longer term commitment with this type of loan. With short term loans you only need to focus on the immediate future as the loan is paid off within a much shorter space of time. Many people find it intimidating to commit to borrowing over a period of many years, worrying about making the payments and managing the loan with all of life going on around. With short term loans this isn’t an issue as repayment terms can be as short as a month, leaving you free to repay and move on.
- Short term loans could cost less. The longer you borrow for, the more interest you will pay. Short term loans offer a simple way to borrow the cash you need and to pay less for it – the shorter the term over which you borrow the money, the less interest you will pay. As you have not secured your home or car with short term borrowing there is also less risk of losing them if you cannot make repayments. While you should always make sure that you only borrow what you can afford to repay, avoiding the risk to your home or car that some longer term loans create can take the pressure off for many people.
Factor(s) determining long-term finance include(s) ________.
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nature of business
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nature of goods produced
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technology used
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all of the above
Collateral are the most primary condition for the furnishing of long term finance.
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True
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False
Personal assets pledged by a borrower as security for a loan are known as collateral. Business borrowers may use equipment or accounts receivable to secure a loan, while individual debtors often pledge savings, a vehicle or a home as collateral. Applications for a secured loan are looked upon more favorably than those for an unsecured loan, because the lender can collect the asset should the borrower stop making loan payments. Banks measure collateral quantitatively by its value and qualitatively by its perceived ease of liquidation.
A long-term investment decision is also called a Capital Budgeting decision.
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True
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False
A long term investment decision is also called a capital budgeting decision. It involves committing the finance on a long term basis, e.g. making investment in a new machine to replace an existing one or acquiring a new fixed assets or opening a new branch etc.
As they are usually for smaller sums, and borrowed over fewer months or years, short term loans tend to be unsecured.
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True
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False
Unsecured loan is a loan that is issued and supported only by the borrower's creditworthiness, rather than by any type of collateral. Because unsecured loans, sometimes referred to as signature loans or personal loans, are obtained without the use of property as collateral, the terms of such loans, including approval and receipt, are most often contingent on the borrower's credit score. Borrowers must generally have high credit ratings to be approved for certain unsecured loans.
Therefore short term loans are issued on the basis of creditworthiness not on the basis of collateral security hence short term loan are unsecured.