Internal Finance 2.1.1

Question 1

Finance

Answer 1

Internal finance is money generated by the business or current owners

Question 2

The need for finance

Answer 2

Firms need money to get started. They might need to buy equipment, raw materials and obtain premises.

Question 3

Capital expenditure

Answer 3

• can be used over and over again. For example a company car, a cutting machine…..

Question 4

Revenue expenditure

Answer 4

Refers to payments for goods and services that have either already been consumed or will be soon. For example wages, raw materials and fuel

Question 5

Capital

Answer 5

The money provided by the owners in a business

Part of the risks taken to become an entrepreneur

Question 6

Retained profit

Answer 6

Profit after tax that is put back into the business

Question 7

Sale of assets

Answer 7

A business can sell unwanted assets to make money

Question 8

Advantages of internal finance

Answer 8

Cheap - no interest
Will not be subject to credit checks
The capital is available immediately
There is no need for third party’s

Question 9

Disadvantages of internal finance

Answer 9

Can be limited
Can be inflexible compared to external source
No inflationary benefits
Opportunity cost can be high