lesson 7

Question 1

share capital benefit (4)

Answer 1

-does not require interest and capital to be repaid

-this will lead to reduced outflows

-this will increase net cash flow in the future

-link to liquidity

Question 2

share capital drawback (4)

Answer 2

-shareholders may request dividends to be paid

-reduced retained profit

-less investment in non current assets such as…

-link to scale

Question 3

overdrafts benefit (4)

Answer 3

-does not require regular monthly payments

-as the overdraft can be paid off when the business chooses

-this means they can reduce payments, and therefore outflows, when there are low inflows

-link to liquidity

Question 4

overdrafts drawback (4)

Answer 4

-interest is much higher o overdrafts compared to a loan

-therefore the overdraft will have increased cost

-for the time that the capital is borrowed

-link to income statement