Sources of Business Finance

Topics in this chapter

• Finance Needs and Classification
• Internal and Owners’ Funds
• Share Capital and Securities
• Borrowed Funds and Debt Sources
• Short-Term Working Capital Finance
• International and Lease Finance

Cheat sheet

Practice questions

1. Question 1Q-97373A

   Which of the following sources of business finance represents permanent capital that cannot be redeemed during the lifetime of the company, except in the case of liquidation?

   1. A.Debentures
   2. B.Equity shares
   3. C.Public deposits
   4. D.Bank overdraft
   See the answer and solution
2. Question 2Q-1C2B53

   A company requires funds for a short-term period of 30 days to meet unexpected working capital requirements. Which of the following instruments is most suitable for this purpose if it is issued at a discount and redeemed at par?

   1. A.Commercial Paper
   2. B.Cumulative Preference Shares
   3. C.Global Depository Receipt
   4. D.Redeemable Debentures
   See the answer and solution
3. Question 3Q-59CF93

   Which source of finance involves raising capital from international markets where shares are denominated in US Dollars and issued outside India?

   1. A.Commercial Banks
   2. B.Inter-corporate Deposits
   3. C.Global Depository Receipts (GDRs)
   4. D.Trade Credit
   See the answer and solution
4. Question 4Q-B3D2BB

   What is the primary advantage of retained earnings as a source of business finance?

   1. A.It requires payment of a fixed rate of dividend.
   2. B.It involves heavy floatation costs and brokerage.
   3. C.It is an internal source free from explicit floatation costs and interest burdens.
   4. D.It dilutes the voting control of existing equity shareholders.
   See the answer and solution
5. Question 5Q-42954D

   An agreement where one party allows another party to use its asset in exchange for periodic lease rentals, without transferring ownership, is known as:

   1. A.Factoring
   2. B.Lease financing
   3. C.Trade credit
   4. D.Underwriting
   See the answer and solution