Edexcel-Internal finance 2.1

Question 1

Capital expenditure

Answer 1

Spending on fixed assets

Question 2

Revenue expenditure

Answer 2

Spending on raw materials and day to day expenses

Question 3

Internal

Answer 3

Inside the business

Question 4

Owners personal savings

Answer 4

Key when business starts
Introduce savings from *redundancy payments
Invest more as business grows *short time cash flow

Question 5

Retained profit

Answer 5

Profit which is reinvested into the business

Question 6

Retained profit advantages

Answer 6

Cheap since does not involve borrowing and extra fees.

Question 7

Retained profit disadvantages

Answer 7

Opportunity cost is shareholders do not receive extra profit

Question 8

Sales of assets

Answer 8

Selling business assets which are no longer required to generate a source of finance

Question 9

Sales of assets example

Answer 9

machinery
buildings

Question 10

Sale and leaseback arrangement

Answer 10

Business sell asset and rents the premisies

Question 11

Sale and leaseback arrangement example

Answer 11

sainsburys leased a property for 500m to LXIREIT

Question 12

Managing working capital more effectively

Answer 12

Extended payments with suppliers
Incentivise customers to pay promptly for purchases

Question 13

Advantages of Internal Finance

Answer 13

Often free does not require interest
Does not involve third parties influencing decisions
Can be organised quickly

Question 14

Disadvantages of Internal Finance

Answer 14

Significant opportunity cost-retained profits cant be used again
May not be enough
Isn’t tax efficient