3.1 Into To Finance

Question 1

What is the purpose of finance for firms?

Answer 1

To manage capital or revenue

Finance is essential for both operational activities and long-term investments.

Question 2

What is capital expenditure?

Answer 2

Finance spent on fixed assets or non-current assets

Capital expenditure includes investments in items that are used for production and have long-term benefits.

Question 3

What are fixed assets?

Answer 3

Assets of monetary value that have a long-term function for a firm

Fixed assets are not intended to be sold in the short term.

Question 4

List examples of fixed assets.

Answer 4

• Land
• Buildings
• Equipment
• Machines
• Commercial vehicles

These assets are crucial for production purposes.

Question 5

What are the reasons for capital investment expenditure in business?

Answer 5

• Add extra production capacity
• Improve efficiency using updated technology
• Comply with changing legislation or regulation

Capital investments have long-term benefits for organizations.

Question 6

What determines the scale of operation in a business?

Answer 6

Expenditure on fixed assets

The scale of operation is influenced by the amount of capital investment made.

Question 7

What are the main challenges for capital expenditure for firms?

Answer 7

• High cost
• Limited sources of finance available

These challenges impact the ability to make necessary investments.

Question 8

What is collateral in the context of capital expenditure?

Answer 8

Financial guarantees for securing external loan capital

Collateral is often required to obtain loans for business growth.

Question 9

What is revenue expenditure?

Answer 9

Spending on day-to-day running of a business

This includes expenses like rent, wages, and bills.

Question 10

List examples of revenue expenditures.

Answer 10

• Advertising and promotion
• Energy costs
• Freight and delivery
• Insurance
• Office supplies and administration
• Raw materials and components
• Rent
• Wages and salaries

Revenue expenditures generate value for the business in the short term.

Question 11

What is the main focus of revenue expenditure?

Answer 11

To generate value for the business today rather than in the future

Effective management of revenue expenditure is essential for profitability.

Question 12

Fill in the blank: Capital expenditure refers to _______.

Answer 12

[investment spending on fixed assets]

This includes the purchase of machinery, equipment, land, and buildings.

Question 13

What must be controlled to ensure profitability in a business?

Answer 13

Costs must be controlled so that sales revenue is sufficient to cover production costs

This is crucial for ensuring the financial health of the business.