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Questions and Answers
What is considered capital expenditure?
What is considered capital expenditure?
Which of the following is NOT an advantage of using personal funds for business finance?
Which of the following is NOT an advantage of using personal funds for business finance?
Retained profits can be described as:
Retained profits can be described as:
What is a disadvantage of selling assets to raise funds?
What is a disadvantage of selling assets to raise funds?
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Which statement correctly describes share capital?
Which statement correctly describes share capital?
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What is an important risk associated with loan capital?
What is an important risk associated with loan capital?
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What is true regarding retained profits in startup businesses?
What is true regarding retained profits in startup businesses?
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What is a common misconception about using loan capital?
What is a common misconception about using loan capital?
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What is a primary advantage of using trade credit?
What is a primary advantage of using trade credit?
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Which of the following is a potential disadvantage of crowdfunding?
Which of the following is a potential disadvantage of crowdfunding?
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How does microfinance primarily benefit low-income individuals?
How does microfinance primarily benefit low-income individuals?
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What is a notable disadvantage of using leasing for asset acquisition?
What is a notable disadvantage of using leasing for asset acquisition?
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Which statement accurately reflects a disadvantage of overdrafts?
Which statement accurately reflects a disadvantage of overdrafts?
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In terms of cash flow, how does trade credit primarily assist businesses?
In terms of cash flow, how does trade credit primarily assist businesses?
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What is an essential requirement for successful crowdfunding?
What is an essential requirement for successful crowdfunding?
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What major limitation do microfinance providers face when offering loans?
What major limitation do microfinance providers face when offering loans?
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What is a major disadvantage of using personal funds for business financing?
What is a major disadvantage of using personal funds for business financing?
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Retained profits are a source of finance that must be repaid.
Retained profits are a source of finance that must be repaid.
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What is the main advantage of using share capital as a source of finance?
What is the main advantage of using share capital as a source of finance?
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Retained profits are the profits that remain within a company after all __________ and __________ are paid.
Retained profits are the profits that remain within a company after all __________ and __________ are paid.
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Which of the following is an advantage of selling assets to raise funds?
Which of the following is an advantage of selling assets to raise funds?
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Loan capital does not have to be redeemed if the business is making a loss.
Loan capital does not have to be redeemed if the business is making a loss.
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Match each source of finance with its respective advantage:
Match each source of finance with its respective advantage:
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What is one disadvantage associated with retained profits?
What is one disadvantage associated with retained profits?
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What is a primary advantage of overdrafts for businesses?
What is a primary advantage of overdrafts for businesses?
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Trade credit allows a buyer to pay the seller immediately upon receiving goods.
Trade credit allows a buyer to pay the seller immediately upon receiving goods.
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What is one disadvantage of leasing assets instead of purchasing them outright?
What is one disadvantage of leasing assets instead of purchasing them outright?
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Crowdfunding requires businesses to meet specific ______ to get their ideas accepted.
Crowdfunding requires businesses to meet specific ______ to get their ideas accepted.
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Which of the following is a disadvantage of microfinance?
Which of the following is a disadvantage of microfinance?
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Match the financing method with its primary characteristic:
Match the financing method with its primary characteristic:
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A significant advantage of trade credit is that it allows for interest-free funds during the credit period.
A significant advantage of trade credit is that it allows for interest-free funds during the credit period.
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What is a common risk associated with overdrafts?
What is a common risk associated with overdrafts?
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Study Notes
Unit 3: Finance
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Capital Expenditure: Money spent on fixed assets (land, buildings, equipment, vehicles) over a year.
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Revenue Expenditure: Money spent on day-to-day business operations (wages, raw materials, electricity).
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Internal Sources of Finance:
- Personal Funds: Money from savings, friends, or family.
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Advantages: Easy to acquire, owner knows how much available.
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Disadvantages: Limited supply, risky if not enough saved.
- Retained Profits: Profits kept within a company after expenses and dividends.
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Advantages: Permanent source of finance, low cost since it doesn't need to be repaid.
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Disadvantages: Insufficient in startups, limits growth if profits are too low.
- Sales of Assets: Selling unwanted or unused assets.
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Advantages: Provides quick cash, no borrowing costs.
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Disadvantages: Time-consuming to find buyers, may lack assets for new businesses.
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External Sources of Finance:
- Share Capital: Money raised from selling company shares.
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Advantages: No interest payments, permanent capital.
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Disadvantages: Dividends expected, potential loss of control.
- Loan Capital: Loans from financial institutions (banks) with interest.
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Advantages: Easily accessible, quick process, specific purpose.
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Disadvantages: Repayment required, even with losses, assets can be seized.
- Overdrafts: When a bank allows a company to withdraw more money than in their account.
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Advantages: Flexible funding for unexpected expenses, allows spending over available funds.
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Disadvantages: High interest rates, short notice to repay, losses can be seized for failure to repay.
- Trade Credit: Agreement allowing businesses to delay payment for goods/services.
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Advantages: Delays payment to suppliers, interest-free periods, good cash flow.
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Disadvantages: Poor relationships if late payments, potential loss of discounts.
- Crowdfunding: Raising small amounts of money from many people.
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Advantages: Access to many investors, useful marketing.
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Disadvantages: Intense competition, complex requirements, business need to prove.
- Leasing: Using an asset without owning it.
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Advantages: Doesn't require upfront capital, useful for short-term needs.
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Disadvantages: Leasing costs can exceed buying, doesn't act as collateral.
- Microfinance: Banking services for low-income individuals.
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Advantages: Access to finance otherwise unavailable.
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Disadvantages: Limited amounts available, difficult to prove repayment capability.
- Business Angels: Private investors funding high-risk ventures for ownership.
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Advantages: No repayment, gain from success.
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Disadvantages: Can lose control of the project, possible buyout needed.
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Description
Explore the key concepts of capital and revenue expenditures, as well as internal and external sources of finance. This quiz covers advantages and disadvantages of various financing methods, including retained profits and asset sales. Test your understanding of financial strategies crucial for effective business operations.
