buss fi 3- 4

Question 1

can be in the form of borrowing from banks
or other lending institutions or issuance of debt securities like
commercial papers and bonds.

Answer 1

Debt financing

Question 2

creates a contractual obligation for the
borrower to pay interest and the principal.

Answer 2

Debt Financing

Question 3

refers to issuance of new shares of stocks
and retained earnings plowed back into the operations of the
company

Answer 3

Equity financing

Question 3

The latter is also called

Answer 3

internally generated funds

Question 4

the safest source of financing for a company
because it does not require any mandatory payment of
dividends

Answer 4

Equity financing

Question 5

also provides the company financial
flexibility.

Answer 5

Equity financing

Question 6

are not tax-deductible.

Answer 6

Cash Dividends

Question 7

which means that for
somebody to take more risk, he must be
compensated by an expected higher return. If this is
not the case, then why take additional risk

Answer 7

“high risk, high return”

Question 8

was developed based on repeated observations of how
companies fund their financing requirements.

Answer 8

pecking order hypothesis

Question 9

These are the funds that
come from operating cash flows.

Answer 9

Internally generated funds

Question 10

When internally generated funds have been
exhausted, debt financing is the next alternative

Answer 10

Debt

Question 11

The last in the priority list of financing is……This is not surprising given that it is more difficult
to issue new shares of stocks

Answer 11

Equity.

Question 12

Suppliers of raw materials and
merchandise are the best sources of short-term working
capital. This is the reason why a good relationship has to be
nurtured with suppliers. As much as possible, honor the
credit terms

Answer 12

Supplier’s credit

Question 13

If you have enough personal
assets and you control the company, advancing funds to the
company, when there are financial requirements, is an easy
way for the company to raise funds. Interest on these
advances can be charged by the stockholder

Answer 13

Advances from stockholders

Question 14

There are occasions when the management
of a company decides to borrow short-term loan to address this
problem.

Answer 14

Supplier’s credit
Advances from stockholders
Credit cooperatives
Bank loans
Lending companies
Informal lending sources such as “5-6”

Question 15

Banks can provide both short-term and long- term loans. Some banks also provide credit facilities, not just to big corporations, but also to small and medium enterprises. But also, to small and medium enterprises.

Answer 15

Bank loans

Question 16

much faster as compared to banks but
they charge higher interests, higher than the banks but
lower compared to a more informal lending, popularly
known as “5-6”

Answer 16

Lending companies.

Question 17

These are small lending companies
which cater normally to small and medium enterprises.

Answer 17

Lending companies.

Question 18

This is a very
expensive source of financing and should be avoided

Answer 18

Informal lending sources such as “5-6”.

Question 19

are used for long-term investments

Answer 19

Long-term funds

Question 20

Long-term funds are used for long-term investments or sometimes called

Answer 20

capital investments

Question 21

can also be used to finance permanent working capital requirements.

Answer 21

Long-term
funds

Question 22

All individuals and businesses face the same two basic finance-related problems:

Answer 22

1. Where to put the money?
2. Where to get the money?

Question 23

is earned or incurred for the use of the principal amount
over the relevant time period.

Answer 23

Interest

Question 24

simply earning interest on
interest.

Answer 24

Compound Interest

Question 25

This means that the basis for the computation of the applicable
interest for a certain period is not only the original principal but also any
interest earned in the previous period assuming all cash flows would be
paid or received in lump sum upon maturity.

Answer 25

Compoud Interest

Question 26

the value of a current asset at a future date
based on an assumed rate of growth

Answer 26

Future value

Question 27

as they use it to estimate how
much an investment made today will be worth in the future.

Answer 27

Future Value

Question 28

It refers to money that comes from the collection of receivabes, proceeds from loadns, or issuance of new share and advances from stockholders

Answer 28

Cash receipts

Question 29

This policy state that permanent working capital and a part of temporary caworking capital is being financed by a long term financing sources.

Answer 29

Conservatice policy

Question 30

This policy state that permanent working capital and a part of temporary caworking capital is being financed by a short term financing sources.

Answer 30

Agressive policy

Question 31

It is the measure of a company’s liquidity, operational efficiency, and short term financial health.

Answer 31

working capital

Question 32

According to
this hypothesis, this is how companies fund their
requirements

Answer 32

1. Internally generated funds
2. Debt
3. Equity

Question 33

are normally used to finance the day-to-day
operations of the company.

Answer 33

Short-term funds

Question 34

It is used for working capital
requirements such as accounts receivable and inventories.

Answer 34

Short-term funds