Tag: owned funds and borrowed funds

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Questions Related to owned funds and borrowed funds

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

Which of the following will result into sources of funds?
(i) Increase in current assets
(ii) Decrease in current assets
(iii) Increase in current liabilities
(iv) Decrease in current liabilities

  1. (i) and (iv)

  2. (ii) and (iii)

  3. (i) and (iii)

  4. (ii) and (iv)
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

A source of funds occurs when there is a decrease in current assets (releasing cash) or an increase in current liabilities (borrowing cash).

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

The increase in profit return resulting from borrowing capital at a low rate and employing it in a business yielding at a higher rate ____________.

  1. Operating leverage

  2. Trading on equity

  3. Asset leverage

  4. Return on investment leverage
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Trading on equity refers to the strategy of using debt (borrowed capital) to increase the return on equity for shareholders, provided the return on assets exceeds the cost of debt.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

Business incubators (or "accelerators") generally focus on the high-tech sector by providing support for new businesses in various stages of development. 

  1. True

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

Business incubators (or "accelerators") generally focus on the high-tech sector by providing support for new businesses in various stages of development- this is a true statement. Business incubators mainly help start-up companies by providing management and other facilities.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

State the following statement is True or False:
A letter sent to the applicant to whom shares are not allotted is known as Letter of Allotment.

  1. True

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

A letter sent to the applicant to whom shares are not allotted is known as Letter of Allotment- this is a true statement. The letter of allotment is mainly useful to the buyer. It contains the details regarding the purchase or sell of the shares.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

Shareholders are the owners of a company.

  1. True

  2. False
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation
A shareholder, commonly referred to as a stockholder, is any person, company, or institution that owns at least one share of a company’s stock. Because shareholders are a company's owners, they reap the benefits of the company's successes in the form of increased stock valuation. If the company does poorly and the price of its stock declines, however, shareholders can lose money.
Although they are owners of the company, shareholders do not manage operations.  A board of directors is appointed to govern the activities and operations of the company.
Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

Public investment in a company is generally in the form of:

  1. Shares

  2. Debentures

  3. Deposits

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

The process of estimating the fund requirements for a business and specifying the sources of funds is called the financial management for a business. The main sources of funds available to a business are shareholder funds and borrowed funds. The public investment in a company can be done by accumulating capital through equity issue to the public or borrowed funds by issuing debentures and public deposits.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

State the following statement is True or False:
A minimum amount of capital to be collected by company at initial stages is minimum subscription.

  1. True

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

A minimum amount of capital to be collected by company at initial stages is minimum subscription- this is a true statement. The minimum shares the company needs to get from the public out of the total issue by the date of closure is known as minimum subscription.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

Classification on on the basis of ownership basis includes ___________.

  1. Owner's funds

  2. Borrowed funds

  3. Loan funds

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

The classification of funds on the basis of ownership of funds raised by a business or a company are: 

Owner's Funds: The funds raised by the owner of the company or business are known as owner's funds
Borrowed Funds: The funds raised by borrowing from the public or investors are known as borrowed funds.
Loan Funds: The funds that are raised on the basis of a loan taken from the bank, government or investors are known as loan funds.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

The sources of funds can be categorized on the basis of _______________.

  1. Time period

  2. Ownership

  3. Source of generation

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

The sources of funds can be categorized on the basis of:

Time period for which the funds are borrowed.
Ownership of the funds that are raised can be public or investors or shareholders.
The sources of funds are the category by which the funds are raised largely categorized into two i.e shareholders funds and borrowed funds.

Multiple choice elements of business sources of business finance - 1 classification & choice of sources of funds classification of sources of finance owned funds and borrowed funds

Medium-term sources of finance include __________.

  1. Loans from financial institutions

  2. Lease financing

  3. Public deposits

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

Medium-term sources of funds are usually for a period of more than one year but not exceeding five years in duration. These finances include, loan from commercial banks or financial institutions, lease financing, public deposits, etc.