Question 1

A form of debt finance which pays low or zero interest is called a:

Accepted Answer

A) eurobond. 
B) deep discount bond. 
C) financial derivative. 
D) convertible loan. 
A) eurobond. 
B) deep discount bond. 
C) financial derivative. 
D) convertible loan.

Question 2

Which of the following is not an illiquid asset used as backing for bonds?

Accepted Answer

A) Inventory. 
B) Music royalties. 
C) Ticket sales to sporting events. 
D) Credit card receipts. 
A) Inventory. 
B) Music royalties. 
C) Ticket sales to sporting events. 
D) Credit card receipts.

Question 3

Why might small businesses prefer backing from business angels? Business Angels:

Accepted Answer

A) may be prepared to accept lower returns on their investment. 
B) generally have little to offer in the way of business experience, so they will not interfere with the running of the business. 
C) are often in a position to make financial decisions quickly. 
D) Both A and C. 
A) may be prepared to accept lower returns on their investment. 
B) generally have little to offer in the way of business experience, so they will not interfere with the running of the business. 
C) are often in a position to make financial decisions quickly. 
D) Both A and C.

Question 4

The statement concerning ordinary shares that is not correct is:

Accepted Answer

A) ordinary shares normally have voting rights. 
B) a growth company has the option of not paying a dividend to its shareholders. 
C) limited liability means that the potential for returns is limited. 
D) dividends depend on profits. 
A) ordinary shares normally have voting rights. 
B) a growth company has the option of not paying a dividend to its shareholders. 
C) limited liability means that the potential for returns is limited. 
D) dividends depend on profits.

Question 5

Which of the following could result from paying accounts payable more quickly?

Accepted Answer

A) lower the buyer's credit rating. 
B) damage relationships with suppliers. 
C) lead to refusal of credit by suppliers. 
D) lower the number of discounts foregone. 
A) lower the buyer's credit rating. 
B) damage relationships with suppliers. 
C) lead to refusal of credit by suppliers. 
D) lower the number of discounts foregone.

Question 6

Equity finance differs from debt finance as:

Accepted Answer

A) dividends are tax deductible, unlike interest on debt. 
B) its claim on assets has priority over debt. 
C) it is permanent financing whereas debt is not. 
D) all of the above are differences. 
A) dividends are tax deductible, unlike interest on debt. 
B) its claim on assets has priority over debt. 
C) it is permanent financing whereas debt is not. 
D) all of the above are differences.

Question 7

An advantage of short-term over long-term borrowing is:

Accepted Answer

A) lower costs. 
B) no need to repay. 
C) flexibility. 
D) all of the above. 
A) lower costs. 
B) no need to repay. 
C) flexibility. 
D) all of the above.

Question 8

Gearing increases earnings per share when the return on assets exceeds the:

Accepted Answer

A) the after tax cost of debt. 
B) firm's return on shareholders' equity. 
C) dividends paid. 
D) return on sales. 
A) the after tax cost of debt. 
B) firm's return on shareholders' equity. 
C) dividends paid. 
D) return on sales.

Question 9

A long-term form of finance that is divided into units, is evidenced by a trust deed and is secured by a floating charge over the assets of a company is a:

Accepted Answer

A) loan. 
B) share. 
C) debenture. 
D) mortgage. 
A) loan. 
B) share. 
C) debenture. 
D) mortgage.

Question 10

Which of the following statements relating to inventory levels and finance is correct?

Accepted Answer

A) Money tied up in inventories is an opportunity cost. 
B) Businesses have to balance money invested in inventory to ensure no missed sales whilst not over-investing. 
C) Overstocked businesses may find it is difficult to sell the inventory due to poor buying decisions. 
D) All of the above statements are correct. 
A) Money tied up in inventories is an opportunity cost. 
B) Businesses have to balance money invested in inventory to ensure no missed sales whilst not over-investing. 
C) Overstocked businesses may find it is difficult to sell the inventory due to poor buying decisions. 
D) All of the above statements are correct.

Question 11

A disadvantage of short-term debt over long-term debt is:

Accepted Answer

A) less flexibility. 
B) greater frequency of re-funding. 
C) a greater likelihood of penalties for early repayment. 
D) All are disadvantages. 
A) less flexibility. 
B) greater frequency of re-funding. 
C) a greater likelihood of penalties for early repayment. 
D) All are disadvantages.

Question 12

Which of the following is not a type of short-term debt finance?

Accepted Answer

A) Bank overdraft. 
B) Factoring of accounts payable. 
C) Invoice discounting. 
D) None of the above. 
A) Bank overdraft. 
B) Factoring of accounts payable. 
C) Invoice discounting. 
D) None of the above.

Question 13

When making an issue of shares to the public:

Accepted Answer

A) it is generally easy to set the price at which the shares will be issued. 
B) it is generally difficult to set the price at which the shares will be issued. 
C) if the share price is set too low, the issue will be undersubscribed. 
D) if the share price is set too high, the issue will be oversubscribed. 
A) it is generally easy to set the price at which the shares will be issued. 
B) it is generally difficult to set the price at which the shares will be issued. 
C) if the share price is set too low, the issue will be undersubscribed. 
D) if the share price is set too high, the issue will be oversubscribed.

Question 14

Which of the following statements about securitisation is incorrect? Securitisation:

Accepted Answer

A) capitalises the future cash flows arising from illiquid assets. 
B) does not have any inherent problems to make it problematic. 
C) is an illegitimate business practice for raising finance. 
D) may also be used to assist in managing risk. 
A) capitalises the future cash flows arising from illiquid assets. 
B) does not have any inherent problems to make it problematic. 
C) is an illegitimate business practice for raising finance. 
D) may also be used to assist in managing risk.

Question 15

Select the correct statement.

Accepted Answer

A) To remain competitive, it is usually best for a firm to take longer to collect money owing by accounts receivable. 
B) By exercising tighter control over accounts receivable, it may be possible for a firm to release funds for other purposes. 
C) By lessening control over accounts receivable, it may be possible for the firm to make accounts receivable balances available for other purposes. 
D) None of the statements is correct. 
A) To remain competitive, it is usually best for a firm to take longer to collect money owing by accounts receivable. 
B) By exercising tighter control over accounts receivable, it may be possible for a firm to release funds for other purposes. 
C) By lessening control over accounts receivable, it may be possible for the firm to make accounts receivable balances available for other purposes. 
D) None of the statements is correct.

Question 16

Select the incorrect statement concerning retained profits as a source of finance.

Accepted Answer

A) Retaining profits has no effect on who controls the business. 
B) The business does not have to wait to receive the funds when using retained profits. 
C) There is more scrutiny when retained profits are used for investment than when shares are issued. 
D) There are no costs associated with retaining profits. 
A) Retaining profits has no effect on who controls the business. 
B) The business does not have to wait to receive the funds when using retained profits. 
C) There is more scrutiny when retained profits are used for investment than when shares are issued. 
D) There are no costs associated with retaining profits.

Question 17

Preference shares are no longer a major source of new finance for companies as:

Accepted Answer

A) they are too risky. 
B) their dividends are not tax deductible. 
C) interest rates over the past few years have been at an all-time low. 
D) Both B and C. 
A) they are too risky. 
B) their dividends are not tax deductible. 
C) interest rates over the past few years have been at an all-time low. 
D) Both B and C.

Question 18

A loan provided by a financial institution based on a proportion of the face value of credit sales outstanding, is known as:

Accepted Answer

A) a secured loan. 
B) invoice discounting. 
C) factoring. 
D) bank overdraft. 
A) a secured loan. 
B) invoice discounting. 
C) factoring. 
D) bank overdraft.

Question 19

Which of the following is correct when considering retained profits as a form of financing?

Accepted Answer

A) Financing is immediate as retained profits are already held by the company. 
B) Companies can only pay out 50% of their retained profits on dividends so there is always money available. 
C) Businesses either pay out all their retained earnings on dividends or they pay none at all. 
D) All of the above statements are correct. 
A) Financing is immediate as retained profits are already held by the company. 
B) Companies can only pay out 50% of their retained profits on dividends so there is always money available. 
C) Businesses either pay out all their retained earnings on dividends or they pay none at all. 
D) All of the above statements are correct.

Question 20

A long-term lease that cannot be cancelled and that transfers virtually all the rewards and risks of ownership to the lessee is called:

Accepted Answer

A) a direct lease. 
B) a leveraged lease. 
C) a finance lease. 
D) an operating lease. 
A) a direct lease. 
B) a leveraged lease. 
C) a finance lease. 
D) an operating lease.

A form of debt finance which pays low or zero interest is called a:

Which of the following is not an illiquid asset used as backing for bonds?

Why might small businesses prefer backing from business angels? Business Angels:

The statement concerning ordinary shares that is not correct is:

Which of the following could result from paying accounts payable more quickly?

Equity finance differs from debt finance as:

An advantage of short-term over long-term borrowing is:

Gearing increases earnings per share when the return on assets exceeds the:

A long-term form of finance that is divided into units, is evidenced by a trust deed and is secured by a floating charge over the assets of a company is a:

Which of the following statements relating to inventory levels and finance is correct?

A disadvantage of short-term debt over long-term debt is:

Which of the following is not a type of short-term debt finance?

When making an issue of shares to the public:

Which of the following statements about securitisation is incorrect? Securitisation:

Select the correct statement.

Select the incorrect statement concerning retained profits as a source of finance.

Preference shares are no longer a major source of new finance for companies as:

A loan provided by a financial institution based on a proportion of the face value of credit sales outstanding, is known as:

Which of the following is correct when considering retained profits as a form of financing?

A long-term lease that cannot be cancelled and that transfers virtually all the rewards and risks of ownership to the lessee is called:

Introduction to Accounting

Measuring and Reporting Financial Position

Measuring and Reporting Financial Performance

Introduction to Limited Companies

Regulatory Framework for Companies

Measuring and Reporting Cash Flows

Corporate Social Responsibility and Sustainability Accounting

Analysis and Interpretation of Financial Statements

Cost-Volume-Profit Analysis and Relevant Costing

Full Costing

Budgeting

Capital Investment Decisions

The Management of Working Capital

Filters

Exam 14: Financing the Business

A form of debt finance which pays low or zero interest is called a:

Which of the following is not an illiquid asset used as backing for bonds?

Why might small businesses prefer backing from business angels? Business Angels:

The statement concerning ordinary shares that is not correct is:

Which of the following could result from paying accounts payable more quickly?

Equity finance differs from debt finance as:

An advantage of short-term over long-term borrowing is:

Gearing increases earnings per share when the return on assets exceeds the:

A long-term form of finance that is divided into units, is evidenced by a trust deed and is secured by a floating charge over the assets of a company is a:

Which of the following statements relating to inventory levels and finance is correct?

A disadvantage of short-term debt over long-term debt is:

Which of the following is not a type of short-term debt finance?

When making an issue of shares to the public:

Which of the following statements about securitisation is incorrect? Securitisation:

Select the correct statement.

Select the incorrect statement concerning retained profits as a source of finance.

Preference shares are no longer a major source of new finance for companies as:

A loan provided by a financial institution based on a proportion of the face value of credit sales outstanding, is known as:

Which of the following is correct when considering retained profits as a form of financing?

A long-term lease that cannot be cancelled and that transfers virtually all the rewards and risks of ownership to the lessee is called:

Introduction to Accounting

Measuring and Reporting Financial Position

Measuring and Reporting Financial Performance

Introduction to Limited Companies

Regulatory Framework for Companies

Measuring and Reporting Cash Flows

Corporate Social Responsibility and Sustainability Accounting

Analysis and Interpretation of Financial Statements

Cost-Volume-Profit Analysis and Relevant Costing

Full Costing

Budgeting

Capital Investment Decisions

The Management of Working Capital

Filters