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Questions and Answers
What is considered an external source of finance?
What is considered an external source of finance?
Which of the following is a characteristic of internal sources of finance?
Which of the following is a characteristic of internal sources of finance?
What is a limitation of relying solely on internal sources of finance?
What is a limitation of relying solely on internal sources of finance?
Which of the following best describes a short-term external source of finance?
Which of the following best describes a short-term external source of finance?
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Which financing option generally involves the highest risk for the investor?
Which financing option generally involves the highest risk for the investor?
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Study Notes
External Sources of Finance
- External sources of finance are funds obtained from outside the business, such as banks, investors, or suppliers.
Internal Sources of Finance
- Internal sources of finance are funds generated from within the business, such as retained earnings, depreciation, or sale of assets.
Limitations of Internal Sources
- Relying solely on internal sources of finance can limit the growth and expansion potential of the business, as it restricts access to larger sums of capital.
Short-Term External Sources
- Short-term external sources of finance typically have a maturity of less than a year and are used to finance short-term needs, such as working capital or seasonal fluctuations in demand.
Financing Options and Risk
- Equity financing, where investors purchase ownership in the company, generally involves the highest risk for the investor, as they have no guaranteed return on their investment.
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Description
Test your knowledge on external and internal sources of finance with this quiz. Answer questions about characteristics, limitations, and the risk involved in various financing options. Perfect for finance students looking to review key concepts.
