Pearson Edexcel IGCSE · Commerce

Sources of finance: Practice Questions

5 multiple-choice questions marked as you go, and 5 written questions with worked solutions. All on Sources of finance.

10 questions32 marksFree, no account

Question 1

1 mark

A small company is struggling with cash flow because its customers take 60 days to pay. They decide to sell their outstanding invoices to a third party at a discount to receive immediate cash. This is known as:

Question 2

1 mark

A firm needs a new delivery vehicle costing \( \$30,000 \). They want to use the vehicle immediately but prefer not to have the burden of ownership or the risk of depreciation at the end of the term. Which source of finance is most suitable?

Question 3

1 mark

A tech startup with high growth potential but significant risk is seeking a large amount of capital. They are willing to offer a portion of equity and accept management guidance in return. This is best described as:

Question 4

1 mark

How do preference shares typically differ from ordinary shares regarding the distribution of company profits?

Question 5

1 mark

A limited company requires \( \$500,000 \) for long-term expansion but does not want to dilute the voting power or control of its existing ordinary shareholders. Which source of finance would be most appropriate?

Question 6

3 marks

Explain why leasing might be preferred over hire purchase for a business that needs to use high-tech equipment that becomes obsolete quickly.

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Question 7

6 marks

Compare factoring and trade credit as short-term sources of finance, specifically focusing on their impact on a firm's cash flow and its relationship with customers.

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Question 8

5 marks

Analyze how the issuance of debentures differs from ordinary shares in terms of the business's obligation to pay returns and the impact on company ownership.

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Question 9

5 marks

A small manufacturing firm needs to acquire a new delivery van costing \(\$40,000\). The owner is considering using either a bank overdraft or a bank loan.
Part A: Define both 'bank overdraft' and 'bank loan' as sources of finance.
Part B: Evaluate which source of finance is more appropriate for purchasing the delivery van.

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Question 10

8 marks

A large Public Limited Company (PLC) plans to raise \(\$10,000,000\) for a new factory expansion. They are choosing between issuing ordinary shares and issuing debentures.
Part A: Compare ordinary shares and debentures in terms of ownership and payment.
Part B: Discuss one advantage and one disadvantage of issuing debentures for the company.

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