Chapter 19~Business Finance

Question 1

Trade creditor?

Answer 1

A person/firm to whom a business owes money

Question 2

Leasing?

Answer 2

Where a firm enters into an agreement with a company to pay them an agreed amount of money each month in return for use of an asset. The leasing company owns the asset, but the form has full use of it.

Question 3

Sale & leaseback?

Answer 3

The sale of a valuable fixed asset(land/buildings) to an investment company at its market value and then it’s lease back over a period of time at an annual rent.

Question 4

Grants?

Answer 4

Non-repayable sources of finance from the government/government agencies (e.g Enterprise Ireland) and the European Union

Question 5

3 requirements when opening a business bank account

Answer 5

• completed application form
• original certificate of incorporation
• copy of memorandum of association and articles of association

Question 6

2 Disadvantage of using leasing as a medium term source of finance?

Answer 6

• firm never owns the asset

- firm will end up paying more than the asset is worth

Question 7

Advantage of leasing as a medium term Source of finance?

Answer 7

• the firm has the use of the asset without having to pay a large sum of money

Question 8

3 short term sources of finance?

Answer 8

• trade creditors
• bank overdraft
• expenses due

Question 9

3 Medium term source of finance?

Answer 9

• term loan
• leasing
• hire purchase

Question 10

5 long term sources of finance ?

Answer 10

• ordinary shares
• retained earnings
• sale & leaseback
• long - term loan
• government & EU grants

Question 11

2 advantages of using an issue of ordinary shares As a long term source of finance?

Answer 11

• the firm does not have to pay back the money they raise from Selling shares
• no interest has to be paid on the money raised from the sale of shares

Question 12

2 advantages of using sale and leaseback as a long tern source of finance?

Answer 12

• the firm receives the cash they need to run their business

- the firm can continue to use the asset as they always did

Question 13

Disadvantage of using sale and leaseback as a long term source of finance ?

Answer 13

• the firm no longer owns the asset and so will not be of their benefit if the value increases

Question 14

2 factors a bank will consider before granting a business loan?

Answer 14

• credit history/credit worthiness - has your business relayed debts in the past
• ability to repay- how does your cash flow forecast look