Finance

Question 1

Sources of finance (4)

Answer 1

-bank overdraft
- grant
-bank loan
-mortgage

Question 2

Bank loan

Answer 2

Money borrowed from the bank which is paid back with interest in instalments

Question 3

Grant

Answer 3

Money secured from the government, which has conditions attached. it doesn’t need to be paid back

Question 4

Mortgage

Answer 4

This is a long-term loan which is secured against the property or land

Question 5

Bank overdraft

Answer 5

A facilitate at the bank to overdraw on your account, usually for less than a year

Question 6

Adv of bank overdraft

Answer 6

Can be agreed in advance

Question 7

Adv of bank loan

Answer 7

Budgeting and planning is easier as repayments are made in regular fixed instalments

Question 8

Adv of mortgage

Answer 8

The business is given a long period of time (approximately 25 years) to repay the mortgage

Question 9

Adv of grant

Answer 9

The grant does not need to be repaided

Question 10

Disadvantage of bank overdraft

Answer 10

This facility may incur a charge to setup and interest rates can be quite high

Question 11

Disadvantage of bank loan (2)

Answer 11

Monthly payments must be made on time. The amount borrowed has to be repaid with interest. This could be expensive

Question 12

Disadvantage of mortgage

Answer 12

Interest has to be paid each month

Question 13

Disadvantage of grant

Answer 13

In order to secure a grant the business must meet certain criteria e.g. employing staff from local area.
Grants can be difficult to obtain.

Question 14

Fixed costs

Answer 14

Costs that always stay the same, no matter how many units of products are made

Question 15

Variable costs

Answer 15

Costs that change depending on how many units of a product are made.

Question 16

Equation of total cost

Answer 16

Fixed cost + Variable cost

Question 17

Variable costs equation

Answer 17

Total costs - fixed costs

Question 18

Total revenue equation

Answer 18

Selling price x units sold

Question 19

To calculate a profit

Answer 19

Profit = Total revenue - Total Costs

Question 20

Break even point

Answer 20

This is the point where the business is making neither a profit nor a loss, when sales revenue is equal to its total costs

Question 21

What do business spend cash on? (3)

Answer 21

• wages
• electricity
• raw materials

Question 22

How can cash flow problem be resolved (6)

Answer 22

• cheaper supplies of raw materials
• offering discounts to customers
• taking out bank loans
• selling equipment or machinery
• spreading purchase costs
• tight stock control

Question 23

Cash budgets

Answer 23

Contains a list of cash the business expects to receive and the cash expected to be paid out of the business over a period of time

Question 24

The benefits of preparing a cash project (6)

Answer 24

• it shows id the business has a surplus
• if shops if the business will have a deficit
• it can show if addictional finance is required
• It can help control expenses by highlighting periods when expenses could be high.
• It can allow action to be taken to avoid a deficit; for example, leasing a van rather than purchasing it, or postponing a purchase.
• It can help in making decisions.