Tag: sources of business finance - 2

Questions Related to sources of business finance - 2

Trade credit is commonly used by business organisations as a source of ___________ financing.

organisation of commerce and management sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Short-term

  2. Long-term

  3. Medium-term

  4. Both A and C

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Correct Option: A
Explanation:

Trade credit is commonly used by business organisations as a source of short-term financing. Trade credits are generally a small amount of finances that are provided by the traders to another trader or a company to ensure smooth flow of trade cycle in the supply chain.

Trade credit is the credit extended by one _________ to another for the purchase of goods and services.

organisation of commerce and management sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Retailer

  2. Wholesaler

  3. Customer

  4. Trader

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Correct Option: D
Explanation:

Trade credits are the credits granted to manufacturers and traders by the suppliers of raw materials. These credits are given to a trader from another trader to ensure the smooth running of trades in a business supply chain.

Trade credit is a convenient and continuous source of funds, which is one of the __________ of trade credit.

organisation of commerce and management sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Limitations

  2. Merits

  3. Functions

  4. Objectives

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Correct Option: B
Explanation:

Trade credit is a short term source of finances where a trader credits finances to another trader for the smooth flow of business. Trade credit is a convenient and continuous source of funds as it is a short term credit and has a low amount value hence can be taken without long term financial plannings. This is one of the merits of trade credit.

Trade credit is needed to promote the ________ of an organisation.

organisation of commerce and management sources of business finance - 2 commercial paper non-institutional sources - short-term short term sources of finance

  1. Purchases

  2. Sales

  3. Drawings

  4. Capital

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Correct Option: B
Explanation:
Trade credit is commonly used by business organisations as a source of short-term financing. It is granted to those customers who have reasonable amount of financial standing and goodwill.If an organisation wants to increase
its inventory level in order to meet expected rise in the sales volume in the near future, it may use trade credit to, finance the same.

The money raised by issue of equity shares is called ________ share capital.

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. Equity

  2. Preference

  3. Bonus

  4. Right

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Correct Option: A
Explanation:

The money raised by issue of equity shares is called equity share capital.Equity share represent the ownership of a company  and thus thus the capital raised by equity shares are also known as ownership capital or ownership funds.

________ shares is the most important source of raising long term capital by a company.

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. Equity

  2. Preference

  3. Bonus

  4. Right

Show answer
Correct Option: A
Explanation:

Equity shares is the most important source of raising long term capital by a company.

Equity shares represent the ownership of the a company and thus is known as owner's capital or owner's funds. Equity share capital is the prerequisite before creation of a company.

Equity shares are suitable for investors who are willing to assume risk for ________ returns.

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. Lower

  2. Higher

  3. Medium

  4. Equal

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Correct Option: B
Explanation:

Equity shares represent the ownership of the company. Equity share holders do not get a fixed dividend but are paid on the basis of earnings by the company.  They enjoy the rewards as well as bear the risks of theownership. Hence, Equity shares are suitable for investors who are willing to assume risk for higher returns.

Which of the following is a merit of equity shares?

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. Equity capital provides credit worthiness to the company.

  2. Equity shares are suitable for investors who are willing to assume risk for higher returns.

  3. Equity capital serves as permanent capital.

  4. All of the above

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Correct Option: D
Explanation:

Equity Share capital is also known as ownership capital or owner's funds. The merits of equity shares are, They provide credit worthiness to the company. Equity shares are suitable for investors who are willing to assume risks for higher returns, Equity capital serves as permanent capital.

The cost of equity shares is generally _______ as compared to the cost of raising funds through other sources.

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. more

  2. less

  3. medium

  4. equal

Show answer
Correct Option: A
Explanation:

Equity shares is the most important source of raising long term capital by a company. Equity shares represent the ownership of the a company and thus is known as owner's capital or owner's funds. 

Hence the cost of equity shares is generally higher as compared to the cost of raising funds through other sources.

As equity capital stands last in the list of claims, it provides a cushion for __________.

commercial studies sources of business finance - 2 equity shares share and stock equity and preference shares

  1. Debtors

  2. Creditors

  3. Owners

  4. Customers

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Correct Option: B
Explanation:

Equity capital are permanent source of capital and can be only returned at the time of liquidation of the company. Thus equity capital stands last in the list of claims, it provides a cushion for creditors claims that needs to be settled at the time of liquidation.