chapter 7

Question 1

business finance

Answer 1

finance is that business activity which is concerned with the acquisition and conservation of capital fund in meeting the financial needs and overall objectives of business enterprise.

Question 2

nature of business finance

Answer 2

1. procure fixed assets and also for meeting day to day expenses
2. meet the working capital requirement when production process is lengthy
3. finance the growth and expansion projects of a company

Question 3

benefits of business concern

Answer 3

1. the firm can meet its liabilities on time
2. the firm can carry on its business smoothly
   3.the firm can make use of its business opportunities
3. the firm can replace its assets and machinery whenever necessary
4. the firm can adopt latest technology

Question 4

two source of finance on the basis of ownership

Answer 4

owner’s fund
borrowed fund

Question 5

owner’s fund

Answer 5

the funds contributed by owners as well as the accumulated profit of the company.

Question 6

features of owners fund

Answer 6

1. source of permeant capital
2. provision of risk capital
3. no security required
4. sources of owner’s fund

Question 7

borrowed fund

Answer 7

the borrowing of the firm

Question 8

features of borrowed fund

Answer 8

1. fixed time
2. security
3. regular payment of interest
4. control

Question 9

share

Answer 9

share is the smallest unit in which the owner’s capital is divided.

Question 10

two types of shares

Answer 10

equity
preference

Question 11

equity share

Answer 11

common security issues under permeant or owner’s fund capital.

Question 12

features of equity shares

Answer 12

1. primary risk bearers
2. control
3. higher profit
4. pre-emptive rigt
   5.basis for loan

Question 13

features of preference share

Answer 13

1. fixed rate of dividend
2. no security
3. voting rights
4. hybrid security
5. help to control large amount of funds

Question 14

retained earrings

Answer 14

undistributed profits after payment of dividend and taxes.