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DIP – Sources of finance QUIZ *solutions*

DIP – Sources of finance QUIZ *solutions*. Lim Sei Kee @ cK. Section A. Matching exercise to test your understanding of the various sources of finance. 1. Trade creditor Supplier – buy goods now and pay later. 2. Bank loan Fixed sum borrowed for a fixed period from bank.

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DIP – Sources of finance QUIZ *solutions*

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  1. DIP – Sources of finance QUIZ *solutions* Lim SeiKee @ cK

  2. Section A • Matching exercise to test your understanding of the various sources of finance

  3. 1. Trade creditor • Supplier – buy goods now and pay later

  4. 2. Bank loan • Fixed sum borrowed for a fixed period from bank

  5. 3. Bank overdraft • Facility available from the bank

  6. 4. Own money • Entrepreneur invests own cash

  7. 5. Hire purchase • Pay for things in instalments

  8. 6. Shares • Sell a stake in the company

  9. 7. Leasing • Use the machine but do not own it

  10. Section B • Answer ALL the following multiple choices questions.

  11. 1. Which of the following is a disadvantage of Capital contributions? • A. High interest charges • B. The business only has 30 – 60 days to repay the owner • C. Limited to personal resources • D. Interest free because you own the money

  12. 1. Which of the following is a disadvantage of Capital contributions? • A. High interest charges • B. The business only has 30 – 60 days to repay the owner • C. Limited to personal resources • D. Interest free because you own the money

  13. 2. No set repayment and no interest charges are advantages of which of the following sources of finance? • A. Internal • B. External • C. Term loan • D. Capital contributions only

  14. 2. No set repayment and no interest charges are advantages of which of the following sources of finance? • A. Internal • B. External • C. Term loan • D. Capital contributions only

  15. 3. Which of the following is an advantage of a term loan? • A. Readily accessible • B. It makes it possible to purchase expensive items • C. No interest charges • D. Repayment can put pressure on cash flow

  16. 3. Which of the following is an advantage of a term loan? • A. Readily accessible • B. It makes it possible to purchase expensive items • C. No interest charges • D. Repayment can put pressure on cash flow

  17. 4. Which of the following statements is False? • A. Internal sources of finance originate from within the business. • B. External sources of finance are usually liabilities • C. Bank overdrafts can be used by the business for any purpose • D. There is never any interest charged for the use of trade credit

  18. 4. Which of the following statements is False? • A. Internal sources of finance originate from within the business. • B. External sources of finance are usually liabilities • C. Bank overdrafts can be used by the business for any purpose • D. There is never any interest charged for the use of trade credit

  19. 5. Define Trade Credit: • A. Form of external finance that banks and other lenders provide for a specific purpose, paid over a period of time. • B. An internal source of finance referring to the amount of money contributed to the business from the business owners personal resources • C. An external source of finance provided by a bank which allows the account holder to withdraw more than their current account balance • D. A facility offered by some suppliers which allows customers to purchase goods/ services and pay at a later date

  20. 5. Define Trade Credit: • A. Form of external finance that banks and other lenders provide for a specific purpose, paid over a period of time. • B. An internal source of finance referring to the amount of money contributed to the business from the business owners personal resources • C. An external source of finance provided by a bank which allows the account holder to withdraw more than their current account balance • D. A facility offered by some suppliers which allows customers to purchase goods/ services and pay at a later date

  21. 6. Which of these is a form of an asset that is paid for a certain length of time which allows the business to control and to use it • A. Term loan • B. Retain earnings • C. Leasing • D. Capital contributions

  22. 6. Which of these is a form of an asset that is paid for a certain length of time which allows the business to control and to use it • A. Term loan • B. Retain earnings • C. Leasing • D. Capital contributions

  23.  7. Which of the following sources of finance has the least risk? • A. Capital contributions • B. Trade credit • C. Term loan • D. Bank overdraft

  24.  7. Which of the following sources of finance has the least risk? • A. Capital contributions • B. Trade credit • C. Term loan • D. Bank overdraft

  25. 8. Reduction of initial payment to acquire assets, little maintenance and repair costs but no ownership of assets is which of the following? •  A. Trade credit • B. Bank overdraft • C. Retained earnings • D. None of the above

  26. 8. Reduction of initial payment to acquire assets, little maintenance and repair costs but no ownership of assets is which of the following? •  A. Trade credit • B. Bank overdraft • C. Retained earnings • D. None of the above

  27. 9. Which of these is a short term source of finance? • A. Mortgage • B. Share issue • C. Bank overdraft • D. Debenture

  28. 9. Which of these is a short term source of finance? • A. Mortgage • B. Share issue • C. Bank overdraft • D. Debenture

  29. 10. Which of these sources of finance must be paid back? • A. Retained profit • B. Share issue • C. Grant • D. Bank loan

  30. 10. Which of these sources of finance must be paid back? • A. Retained profit • B. Share issue • C. Grant • D. Bank loan

  31. Section C • Decide whether each of the 15 sources of finance given can be classed as either Internal or External methods.

  32. INTERNAL • Selling assets • Chasing debtors • Owner funds • Retained profits • Reducing stocks • Share capital • EXTERNAL • Issuing shares • Leasing • Mortgage • Overdraft • Government grants • Hire purchase • Loans • Trade credit • Venture capital

  33. Section D • Complete the paragraph so that it makes sense by selecting the correct word from each menu

  34. There are two main types of finance available to a business. The easiest to use is [ external finance / short term finance / long-term finance / internal finance ]. An example of this would be [ share capital / government grant /retained profit / bank overdraft / bank loan ].

  35. Alternatively a business can use [ external / internal / short term / medium term ] sources of finance, such as [ the sale of assets / owners fund / retained profit / a bank loan ]. • If a business is providing jobs in an area of high unemployment they may be able to obtain [ bank loan / trade credit / a mortgage / a government grant ]. The sources of finance used can affect the costs of a business.

  36. For example, if a business obtained computers by using [ trade credit / a lease / owners funds / retained profits ] then they would have to make regular payments. This would make them a [ running cost / start up cost ] rather than a [ running cost/ start up cost ]

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