Questions and Answers
Which of the following expenses is NOT tax deductible for businesses?
How does issuing ordinary shares affect company control?
Which source of finance typically does NOT require strong security collateral?
What can decrease the cost of borrowing for a business?
Signup and view all the answers
Why might potential lenders hesitate to provide funds to high-risk businesses?
Signup and view all the answers
Which financial option is considered as having a high risk due to a lower chance of profit?
Signup and view all the answers
What type of finance involves regular payments but allows the business to keep ownership of the asset?
Signup and view all the answers
Study Notes
Taxation
- Some finance options for businesses and households are tax deductible, while others are not.
- Tax deductible options help reduce the cost of borrowing by lowering year-end tax liability.
- Interest on loans is tax deductible for businesses, enhancing cash flow.
- Mortgage interest can be deducted by businesses, contributing to reduced operational costs.
- Leasing payments made by a business are also tax deductible, providing financial flexibility.
- Interest from hire purchase repayments is deductible, aiding businesses in purchasing equipment.
- Dividend payouts are not tax deductible, potentially discouraging the use of ordinary shares as a financing option.
Control
- Businesses must evaluate if a financing source will dilute their control over the company.
- Issuing ordinary shares results in dilution of company control, affecting decision-making authority.
- Loans do not dilute control, allowing owners to retain full decision-making power.
Risk
- Businesses with lower profit-making potential are categorized as higher risk compared to more profitable ones.
- Potential financiers assess risk levels, often refusing loans to higher risk entities unless guarantees for repayment are provided.
- Newly established businesses are viewed as high risk due to unproven viability and profitability.
- To mitigate risks associated with lending, strong security collateral may be required from higher risk businesses.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Description
This quiz covers the key aspects of taxation and its impact on businesses and households. Learn about tax-deductible options, including interest on loans and leasing payments, that can enhance financial flexibility and reduce operational costs. Test your knowledge on how these taxation strategies can benefit cash flow and overall financial management.
