Financial Planning: Short, Medium, Long Term
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Questions and Answers

What is the consequence of overcapitalization in a company?

  • Reduction in interest payments
  • Efficient use of resources
  • Inefficient use of resources (correct)
  • Increased return on equity
  • Which scenario best describes balanced capitalization?

  • A tech startup obtaining insufficient funding
  • A company relying entirely on debt for financing
  • A company securing funding far beyond its needs
  • A manufacturing company carefully assessing its capital needs (correct)
  • What is undercapitalization in a company?

  • Exceeding the actual capital requirements
  • Achieving the right balance between debt and equity
  • Insufficient capital to meet operational needs (correct)
  • Having no need for external funding
  • Which best describes equity capital?

    <p>Raised by issuing shares to shareholders</p> Signup and view all the answers

    What is debt capital in a company?

    <p>Obtained through loans or bonds</p> Signup and view all the answers

    In terms of capital gearing, what does it mean to be highly geared?

    <p>Depends significantly on debt for financing</p> Signup and view all the answers

    What is the primary issue with overcapitalization?

    <p>Reduced return on equity</p> Signup and view all the answers

    How does undercapitalization impact a company's operations?

    <p>Insufficient funds for operational needs</p> Signup and view all the answers

    'Balanced Capitalization' is achieved when:

    <p>'The firm maintains a harmonious capitalization with its operational needs'</p> Signup and view all the answers

    'Debt-Equity ratio' refers to:

    <p>'The capital structure of a company'</p> Signup and view all the answers

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