Ch: 8 Sources of Business Finance
- The internal source of finance include:
- (a) Factoring (b) Debentures
- (c) Retained earnings (d) Bank loan
- Write the name of any three external sources of business finance.
- What are the merits of equity shares ?
- _____ is an unsecured promissory note issued by a firm to raise funds for a short period varying from 90 days to 364 days.
- (a) Equity share (b) Trade credit (c) Debentures (d) Commercial paper
Ans : Commercial paper
- Briefly explain trade credit as a short-term source of finance.
- Even Though lease financing is one of the important sources of finance, it suffers from some limitations. List out any three such limitations.
- State any two merits and demerits of debentures.
- Identify the document which acknowledges debt of a company.
(a) Share (b) Debenture (c) Stock (d) All of these
- What do you mean by working capital ?
- Describe the term ‘retained earnings’.
- Write four differences between share and debenture.
- What do you mean by Retained Earnings ?
- Write any three differences between a share and debenture.
- ‘Business requires capital for long term and short term purposes.,
Ans : Issue of Shares
- Equity shares
- Preference shares
- Issue of debentures
- Loan from financial institutions
- Retained earnings
- The maturity period of commercial paper is …………………
(a)- 20-40 Days,(b)60-90 Days,(c)90-364 days,(d)120-365 Days
- What is minimum subscription?
Ans :Minimum Subscription: It is the minimum amount of capital which in the opinion of directors must be raised by a company through issue of shares before making allotment of shares. A public company can’t commence business without raising minimum subscription. Normally the limit of minimum subscription is 90% of the size of the issue.
- Match the following
Existing share holders
Debt to total capital
Ans : Debenture – Borrowed fund
Equity shares – Owned fund
Financial leverage – Debt to capital
IPO – Primary market
Right issue – existing share holders.
19 – Complete the series as per hint given.
A ) equity shares – Owned fund
B ) Debentures- ……..?………
20 – Find the odd one out:
a) Trade credit
b) Certificate of deposit
c) bank overdraft
d)Ploughing back of profit
Ans:Ploughing back of profit
20 – What do you mean by plaughing back of profit?
21 – Write any four differences between a share and a debenture.
22 – A company wants to purchase a plant and machinery as a part of its modemization programme. Identify the type of fund required’
- Short term capital
- Working caPital
- Fixed capital
- None of these
Ans : Fixed capital
23 – Which of the following is not an external source of finance ?
(a) Preference share
(b) Public deposits
(c) Commercial Paper
(d) Equity share
Ans: Equity share
24 – As a source of finance retained earnings is a better option than other sources.” Justify the statement.
25 – Alpha Ltd. decided to raise fund for its expansion programme’ As a finance manager what are the factors you should consider while choosing a suitable source of finance for the comPanY ? (anY four factors)
26 – Identify the document issued by public companies to invite public to subscribe its shares.
- a) Prospectus
- b)Memorandum of Association
- c) Table A
- d) Articles of Association
27 – FilI in the series given :
- a) Equity Shares – owned capital
- b) Debentures -…..?……
Ans: borrowed /debt / creditorship
28 – Write any two merits of retained earnings as a source of finance.
29 – Briefly explain the objectives of International Monetary Fund.
30 – Briefly describe any two sources of long term capital.
31 – Write any three merits of ‘factoring’ as a financial service.
1 .Provides protection to the firms against bad debts
2. Ensure timely payment of account receivables
3. Helps the clients to meet liabilities at the earliest
4. Can focus attention on core activities and debt recovery will be taken care by factors