Business Finance : Quiz
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Questions and Answers
- 1.
Which of the following best defines long-term finance :
- A.
Use of finance for a project that lasts at least six months.
- B.
Use of finance for a project that lasts more than a year.
- C.
Use of credit that has a maturity period greater than one year.
- D.
Use of finance for a project that has a maturity period of one year.
Correct Answer
C. Use of credit that has a maturity period greater than one year.Explanation
Long-term finance refers to the use of credit that has a maturity period greater than one year. This means that the funds borrowed will be repaid over a period of time that exceeds one year. This type of financing is typically used for projects or investments that require a longer time to generate returns or to be completed. It allows businesses to access larger amounts of capital and spread out the repayment over a longer period, which can be beneficial for managing cash flow and achieving long-term goals.Rate this question:
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- 2.
Which of the following best defines short - term finance :
- A.
Money used for day to day business expenditure.
- B.
Money which should be re-paid within one year.
- C.
Money which should be paid within four years.
- D.
Money used for short-term investments.
Correct Answer
B. Money which should be re-paid within one year.Explanation
Short-term finance refers to funds that are borrowed or invested for a relatively brief period, typically less than one year. This type of finance is used to meet immediate business expenses, such as covering operational costs, purchasing inventory, or managing cash flow. It is characterized by its short repayment period, usually within one year, and is often obtained through sources like short-term loans, trade credit, or lines of credit. This definition aligns with the answer choice "Money which should be re-paid within one year."Rate this question:
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- 3.
Which one of the following is not an advantage of issuing shares to the public:
- A.
Need not require repayment.
- B.
No interest payment.
- C.
Large amount of capital could be raised.
- D.
Shareholdings of the existing shareholders will be unchanged.
Correct Answer
D. Shareholdings of the existing shareholders will be unchanged.Explanation
Issuing shares to the public has several advantages, such as not requiring repayment, no interest payment, and the ability to raise a large amount of capital. However, the shareholdings of existing shareholders will not remain unchanged when shares are issued to the public. This is because new shareholders will acquire a portion of the company's ownership, diluting the ownership percentage of existing shareholders. Therefore, the statement that "Shareholdings of the existing shareholders will be unchanged" is not an advantage of issuing shares to the public.Rate this question:
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- 4.
Divine Fresh Lanka is currently operating as a private limited company. In 2020 the legal structure has changed to a public limited company. Which of the following is the additional source of finance which Divine could used to raise finance :
- A.
Issue of shares.
- B.
Issue of debentures.
- C.
Long-term bank loan.
- D.
Crowd funding.
Correct Answer
B. Issue of debentures.Explanation
In order to raise finance after changing its legal structure to a public limited company, Divine Fresh Lanka can issue debentures. Debentures are long-term debt instruments that are issued by companies to raise funds from the public. By issuing debentures, Divine Fresh Lanka can attract investors who are willing to lend money to the company in exchange for regular interest payments and the repayment of the principal amount at maturity. This can provide an additional source of finance for the company to support its operations and growth.Rate this question:
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- 5.
Mr. Y owns a food manufacturing company. The business requires some additional funds for a new project. Mr. Y is planning to sell some of the machinery and rent it back immediately. This could be identified as :
- A.
Leasing.
- B.
Hire purchase.
- C.
Sale and lease back.
- D.
All of the above.
Correct Answer
C. Sale and lease back.Explanation
Sale and lease back refers to a financial arrangement where a company sells its assets, such as machinery, to a third party and then leases it back from them. In this case, Mr. Y is planning to sell some machinery and immediately rent it back. This allows the company to free up cash by selling the assets while still being able to use them for their business operations. Therefore, the correct answer is sale and lease back.Rate this question:
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- 6.
External sources of finance do not include :
- A.
Leasing.
- B.
Debentures.
- C.
Venture capital.
- D.
Reduction of working capital.
Correct Answer
D. Reduction of working capital.Explanation
External sources of finance refer to funds that are obtained from outside the organization. Leasing, debentures, and venture capital are all examples of external sources of finance as they involve obtaining funds from external parties such as leasing companies, investors, or financial institutions. However, the reduction of working capital is not a source of finance but rather a strategy to optimize the utilization of existing working capital within the organization. It involves minimizing current assets or increasing current liabilities to improve cash flow and operational efficiency.Rate this question:
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- 7.
Sources of finance could be defined as :
- A.
Money raised from within the organization only.
- B.
Money raised from outside the organisation only.
- C.
Money raised from within the organisation and l or outside the organization.
- D.
None of the above.
Correct Answer
C. Money raised from within the organisation and l or outside the organization.Explanation
The correct answer is "Money raised from within the organization and/or outside the organization." This answer encompasses all possible sources of finance, whether it is generated internally or obtained from external sources. It allows for flexibility in financing options, as organizations can choose to rely solely on internal funds or seek external funding through loans, investments, or other means. This answer acknowledges that organizations have the potential to raise money from both within and outside their own operations.Rate this question:
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- 8.
The main benefit of using Trade Credit rather than a loan involves :
- A.
Improves the cashflow of the business.
- B.
No discounts recieved.
- C.
Its easier for a new business to obtain trade credit.
- D.
Its interest free.
Correct Answer
D. Its interest free.Explanation
The main benefit of using trade credit rather than a loan is that it is interest-free. This means that the business does not have to pay any additional cost for borrowing the money, which ultimately helps in saving money and improving the cash flow of the business. Additionally, trade credit is easier for a new business to obtain compared to a loan, but it does not guarantee any discounts received.Rate this question:
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- 9.
A company wants to purchase a projector, to use during board meetings but may sell it later. The cost of the projector is Rs. 150,000.00 and a 30% down payment is made at the point of purchase which is Rs. 45,000.00.And the balance Rs.105,000.00 will be paid in installments with interest. This means the company is using :
- A.
Leasing.
- B.
Sale and lease back.
- C.
Hire purchase.
- D.
All of the above.
Correct Answer
C. Hire purchase.Explanation
The company is using hire purchase because they are making a down payment and then paying the remaining balance in installments with interest. This indicates that they are purchasing the projector on credit and will own it once all the payments are made. Leasing and sale and lease back involve renting the projector rather than purchasing it, so they do not apply in this situation.Rate this question:
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- 10.
ABC, uses a financing method where small amounts of money are collected from a large number of individuals in order to finance a business venture. The form of finance used could be :
- A.
Venture capital.
- B.
Micro finance.
- C.
Crowd funding.
- D.
Grants.
Correct Answer
C. Crowd funding.Explanation
The financing method described in the question, where small amounts of money are collected from a large number of individuals to finance a business venture, is commonly known as crowd funding. In crowd funding, individuals contribute small amounts of money towards a project or business idea, usually through an online platform. This method allows entrepreneurs to access capital from a wide pool of potential investors, often without the need for traditional financial institutions or venture capitalists. Microfinance, on the other hand, typically involves providing small loans or financial services to individuals or small businesses in low-income communities. Venture capital refers to investments made by professional investors in high-potential startups, while grants are non-repayable funds provided by organizations or governments to support specific projects or initiatives.Rate this question:
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Current Version
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Jan 27, 2023Quiz Edited by
ProProfs Editorial Team -
Apr 17, 2020Quiz Created by
Omanthi82
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