M2-Topic 2 part 1 internal and external sources of finance

Question 1

what are sources of finance

Answer 1

ways a business acquires funds in order to operate

Question 2

what are different types of sources of finance are there(2)

Answer 2

external
internal

Question 3

what are different external sources financed(2)

Answer 3

equity
debt

Question 4

name a type of internal source of finance

Answer 4

retained profits

Question 5

name types of external equity sources (2)

Answer 5

ordinary shares
private equity

Question 6

what are the different types of external debt sources(2)

Answer 6

long term
short term

Question 7

name types of short term debt sources(3)

Answer 7

overdraft
factoring
commercial bills

Question 8

name types of long term debt (4)

Answer 8

mortgage
debentures
unsecured notes
leasing

Question 9

what does internal sources of finance mean

Answer 9

they are funds generated inside the business

Question 10

what are retained profits

Answer 10

retained earning that will be used for future expansion of a business

Question 11

what is debt

Answer 11

finance that must be borrowed + must be repaid

Question 12

what is equity

Answer 12

gaining finance through shares and investments from new owners, and share holders

Question 13

what is an overdraft

Answer 13

when the business has permission from the bank to take out money into negatives to an agreed amount

Question 14

what is factoring

Answer 14

the selling of accounts receivable to finance companies or factoring businesses for a discounted amount

Question 15

what are commercial bills

Answer 15

short term loans issued in large amounts (1000+), for a period of up to 6 month, which is paid fully + interest at the end of the term

Question 16

what is long term debt

Answer 16

borrowed funds for periods of 12 months or longer

Question 17

what is mortgage

Answer 17

a loan to secure property,

Question 18

what is lender allowed to do if a mortgage isn’t repaid

Answer 18

the lender has the right to reposes the building

Question 19

what are unsecured notes

Answer 19

they notes sold by the company to raise money for expansion

Question 20

what is the risk for a investors in buying unsecured notes

Answer 20

if the company goes bankrupt they have no security to get there investment money and interest back

Question 21

what are debentures

Answer 21

financial contracts issued by a company, where the issuer promises to pays a fixed rate of interest, and pay back the amount borrowed at maturity

Question 22

what happens if a debenture isn’t paid back fully

Answer 22

the investor has security and is able to repossess items from the business in order to get there money back

Question 23

what is leasing

Answer 23

the payment of money for use of equipment that is owned by another party (cars, machinery,computers)