Tag: sources of business finance

Questions Related to sources of business finance

Of the total ________ term finance, the proportions to be raised by way of debt and/or equity is also a financial management decision.

long-term and short-term finance sources of business finance business studies

  1. short

  2. medium

  3. long

  4. both a and b

Show answer
Correct Option: C
Explanation:

Financial management, among others, involves decision about the proportion of long-term and short term funds. An organisation wanting to have more liquid assets would raise relatively more amount on a long-term basis. There is a choice between liquidity and profitability. The underlying assumption here is that current liabilities cost less than long term liabilities.

Which of the following are factors affecting the choice of source of funds?

long-term and short-term finance sources of business finance business studies

  1. Cost

  2. Purpose and time period

  3. Risk profile

  4. All of the above

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Correct Option: D
Explanation:

A business cannot function smoothly unless it has adequate funds are made available to them. The need of funds arises from the stage when an entrepreneur decides to start a business. The factors affecting the choice of sources of funds are the cost that it will incur to raise funds, the purpose and the duration for which the funds are to be raised and the risk that a company has to bear to raise those funds.

There are _______ types of cost that should be taken into account while deciding about the source of funds to be used for an organisation.

long-term and short-term finance sources of business finance business studies

  1. two

  2. three

  3. four

  4. six

Show answer
Correct Option: A
Explanation:

There are two types of cost that should be taken into account while deciding about the source of funds to be used for an organization. The two types of cost include explicit and implicit cost of the organization.

The ______________ of a business is a key determinant.

long-term and short-term finance sources of business finance business studies

  1. cost

  2. financial strength

  3. legal status

  4. control

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Correct Option: B
Explanation:

The financial strength of a business is a key determinant as finance is the life blood of any business. Finances are required by a company to carry out various activities. They can be classified into long-term capital needs and working capital needs.

___________ borrowings offer the benefit of reduced cost due to reduction of idle capital.

long-term and short-term finance sources of business finance business studies

  1. Short-term

  2. Long-term

  3. Medium-term

  4. Both a and b

Show answer
Correct Option: A
Explanation:

Short term borrowings offer the benefit of reduced cost due to reduction of idle capital. Short term borrowings refers to the debt which is obtained for an year or less than a year.

____________ borrowings are considered a necessity on many grounds.

long-term and short-term finance sources of business finance business studies

  1. Short-term

  2. Long-term

  3. Medium-term

  4. Both a and b

Show answer
Correct Option: B
Explanation:

Long-term borrowings are generally used for fixed capital needs like plant & machinery, buildings and projects. They are borrowings which exceed 5 years or more. Hence, long-term borrowings are considered a necessity on many grounds.

The stakeholders of the company include  ___________.
business studies sources of business finance internal & external stakeholders and distinction between shareholders, stakeholders and customers stakeholders in commercial organisation stakeholders

  1. shareholders

  2. government authorities

  3. employees

  4. All of above

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Correct Option: D
Explanation:
A stakeholder is a person which has an interest in a company that he/she deals with and can either affect or be affected by the business. Thus shareholders, government authorities, employees etc are stakeholders of the company.

Communities and governments are closely tied external stakeholders.

business studies sources of business finance internal & external stakeholders and distinction between shareholders, stakeholders and customers stakeholders in commercial organisation stakeholders

  1. True

  2. False

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Correct Option: A
Explanation:

Communities and governments are closely tied external stakeholders- this is a true statement.External stakeholders belong to the entities outside the business organization. Officials and suppliers are also external stakeholders.

________ contributes asset in a form of capital or equity.

business studies sources of business finance internal & external stakeholders and distinction between shareholders, stakeholders and customers stakeholders in commercial organisation stakeholders

  1. An investor

  2. A Creditor

  3. Employees

  4. Managers

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Correct Option: A
Explanation:

 An investor contributes asset in a form of capital or equity. Investors invests capital or wealth in any company or financial market to receive some financial gain in return.

Maximizing shareholder value is a very limited concept and distracts everyone from what the purpose of a company is or should be.

business studies sources of business finance internal & external stakeholders and distinction between shareholders, stakeholders and customers stakeholders in commercial organisation stakeholders

  1. True

  2. False

Show answer
Correct Option: A
Explanation:

Maximizing shareholder value is a very limited concept and distracts everyone from what the purpose of a company is or should be- this is a true statement. Maximizing the number of shareholders should be the purpose of a company.