Tag: non-institutional sources - long-term

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

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 _______.

  1. 0

  2. 1

  3. 0.84

  4. 0.64
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

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

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

Assets of the company belongs to the _______________.

  1. company

  2. share holders

  3. members

  4. promoters
Reveal answer Fill a bubble to check yourself
B Correct answer
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.
Multiple choice organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

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

  1. Debentures

  2. Public deposit

  3. Loans from financial institutions

  4. Retained earnings
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Retained earnings are internal funds generated by the company from its profits. Since they do not involve borrowing or external obligations, they do not impose a financial burden of interest or repayment.

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

Identify the limitation of retained earnings ___________________.

  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.
Reveal answer Fill a bubble to check yourself
A Correct answer
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.
Multiple choice organisation of commerce and management sources of business finance - 2 equity and preference shares equity shares and preference shares non-institutional sources - long-term

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

  1. Interest

  2. Dividend

  3. Floatation cost

  4. All of the above
Reveal answer Fill a bubble to check yourself
D Correct answer
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.

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

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

  1. Trade credit

  2. Debentures

  3. Retained earning

  4. Preference shares
Reveal answer Fill a bubble to check yourself
C Correct answer
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.

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

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

  1. Higher

  2. Lower

  3. No

  4. Constant
Reveal answer Fill a bubble to check yourself
B Correct answer
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.

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

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

  1. new profit

  2. net operating profit

  3. capital profit

  4. retained earnings
Reveal answer Fill a bubble to check yourself
D Correct answer
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’.

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

Which one is more appropriate for cost of retained earnings?

  1. Weighted Average Cost of Capital.

  2. Opportunity cost to the firm.

  3. Expected rate of return by the investor.

  4. None of the above
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Opportunity cost to the firm is the more appropriate for cost of retained earnings. The opportunity cost of the firm  includes explicit cost as well as implicit cost.

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

state the following statements are True or False:

An individual can become a part of the company if the individual purchases the companies debt. 

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

An individual can become a part of the company if the individual purchases the companies debt- this is a false statement as debt is known as borrowed fund of the company and the person who purchases companies debt are known as the borrowers.