Sources of finance: Practice Questions

Which of the following is an example of an internal source of finance for a business?

A company is deciding whether to fund a major expansion through debt (loans) or equity (shares). Which of the following is a disadvantage of choosing debt finance over equity?

Which of the following is an external source of finance that creates a legal obligation for a business to repay the principal amount along with interest over a fixed period?

Which of the following is an example of an internal source of finance for a business?

A small business needs to raise \(\$5,000\) quickly to repair a vital piece of machinery. Which external source of finance would be most appropriate for this short-term requirement?

Define venture capital and identify one reason why a high-growth start-up might seek this type of finance.

Hassan plans to open a new bakery. He estimates he will need $50,000 to start up the business. He has $20,000 of his own savings. He needs to secure the remaining funds. He is considering a bank loan or inviting a partner to invest.

(a) Identify and explain two internal sources of finance that Hassan could consider for his bakery, other than his own savings. (4 marks)

(b) Discuss the advantages and disadvantages for Hassan of using a bank loan as a source of finance for his new bakery. (4 marks)

Identify and briefly explain two internal sources of finance and two external sources of finance that a newly established small business might consider using to fund its initial operations.