Unit 3

Question 1

Capital expenditure

Answer 1

finance spent on fixed assets such as building, machinery, equipment etc.

Question 2

Revenue expenditure

Answer 2

Finance spent on the daily running of a business such as wages, raw materials, insurance, bills etc.

Question 3

Name the types of internal sources of finance

Answer 3

Personal funds, retained profits and sale of assets

Question 4

Personal funds

Answer 4

personal savings/ money from family and friends

Question 5

Sale of assets

Answer 5

Selling unnecessary equipment and/ or premise

Question 6

Retained profits

Answer 6

Profits which remain/ are reinvested after all dividends and costs are paid

Question 7

Advantages and disadvantages of Personal funds

Answer 7

Advantages: no interest rate, full control, easy access
Disadvantages: insufficient, risky

Question 8

Advantages and disadvantages of retained profits

Answer 8

Advantages: No interest rate, full control
Disadvantages: Not available to startups, insufficient

Question 9

Advantages and disadvantages of sale of assets

Answer 9

Advantages: no interest rate, full control
Disadvantages: insignificant and takes a long time

Question 10

When would personal funds be suitable

Answer 10

Unlimited liability companies such as sole traders and partnerships

Question 11

When would retained profits be suitable

Answer 11

Limited liability organizations that can retain profits without upsetting shareholders

Question 12

When would sale of assets be suitable

Answer 12

When a business is about to shut down or relocate

Question 13

Name 5 external sources of finance

Answer 13

Any 5 of these: Share capital, loan capital, overdrafts, trade credit, crowdfunding, leasing, microfinance providers and business angels

Question 14

Share capital

Answer 14

funds raised through the sale of shares

Question 15

Loan capital

Answer 15

Finance obtained from commercial lenders (bankers)

Question 16

Overdrafts

Answer 16

when a business uses more money than it has in its account

Question 17

Crowdfunding

Answer 17

Obtaining a small amount of money from a large group of people

Question 18

Trade credit

Answer 18

Opportunity to back back the creditor at a later date (“buy now pay later”)

Question 19

Leasing

Answer 19

When a lessee hires an asset from a lessor

Question 20

Microfinance provider

Answer 20

An organization that provides microcredit to low-income individuals/ businesses

Question 21

Business angels

Answer 21

Wealthy individuals who invest in a business with high growth potential

Question 22

Advantages and disadvantages of share capital

Answer 22

Advantages: large sum of money with no interest
Disadvantages: loss of control, bureaucracy and requirement to pay dividends

Question 23

Advantages and disadvantages of Loan capital

Answer 23

Advantages: no loss of control
Disadvantages: interest rate, required collateral

Question 24

Advantages and disadvantages of overdrafts

Answer 24

Advantages: easy to acquire
Disadvantages: high interest rates

Question 25

Advantages and disadvantages of trade credit

Answer 25

Advantages: Business has time to process raw materials and pay back the creditor Disadvantages: if payments are late, businesses can be charged with a fee

Question 26

Advantages and disadvantages of crowdfunding

Answer 26

Advantages: market research, advice from potential investors, no risk, can be rewarding Disadvantages: commission fee, a lot of competition

Question 27

Advantages and disadvantages of microfinance providers

Answer 27

Advantages: accessibility to finance for the impoverished, creation of jobs Disadvantages: unethical lending practices, limited eligibility, limited sums of finance, high interest rates

Question 28

Advantages and disadvantages of leasing

Answer 28

Advantages: no maintenance, lower tax, business expense Disadvantages: no ownership rights and is way more expensive in the long run

Question 29

Advantages and disadvantages of business angels

Answer 29

Advantages: No interest rates Disadvantages: loss of control, high competition, not common/ hard to find

Question 30

Where would Share capital be most suitable

Answer 30

Limited liability organizations that have shares (publicly and privately held companies)

Question 31

Where would loan capital be most suitable

Answer 31

When a large sum of money is needed in exchange for long term payments

Question 32

Where would overdrafts be most suitable

Answer 32

When there are minor cash flow issues

Question 33

Where would Trade credit be most suitable

Answer 33

When there is a good relationship between the business/ debtor and the supplier/ creditor

Question 34

Where would crowdfunding be most suitable

Answer 34

when a small business has no start-up capital but has outstanding business ideas

Question 35

Where would leasing be most suitable

Answer 35

when the business needs an asset for a short amount of time but cannot afford to purchase it

Question 36

Where would microfinance providers be most suitable

Answer 36

In less developed economies with businesses that do not have access to finance from traditional lenders

Question 37

Where would business angels be most suitable

Answer 37

when there are businesses that have a high growth potential

Question 38

Name the short term sources of finance

Answer 38

Personal funds, retained profits, overdrafts (sale of fixed assets, trade credit and crowdfunding)

Question 39

Name the long term sources of finance

Answer 39

Share capital, Business angels, Loan capital, Debentures, leasing (sale of fixed assets, trade credit and crowdfunding)

Question 40

Debenture

Answer 40

Long term loans issued by a business

Question 41

examples of loan capital

Answer 41

Mortgages, debentures, bank loans etc.

Question 42

Gearing ratio

Answer 42

borrowing as a percentage of its total capital employed

Question 43

Hire purchase

Answer 43

When you pay for an asset in instalments and claim ownership once the last payment is made

Question 44

Sale and leasback

Answer 44

when you sell some of your assets and immediately lease the assets you just sold

Question 45

What is the duration of something labelled as "short-term"

Answer 45

In the next 12 months (less than a year)

Question 46

what is the duration of something labelled as "long-term"

Answer 46

1-5 years +

Question 47

What are MNCs

Answer 47

Multinational companies are companies that operate in two or more countries or is legally registered in two or more countries

Question 48

What is a host country

Answer 48

Any country which allows an MNC to set up on its territory

Question 49

Reasons companies become MNCs

Answer 49

Increased customer base, cheaper production costs, global EOS, Spreading risks, avoiding protectionism

Question 50

Globalization

Answer 50

a trend/ process of integration of local economies into one global economy, whereby companies, organizations and people think globally but act locally.

Question 51

name 5 Impacts of globalization

Answer 51

cultural diversity, level of competition, ability to meet customer expectations, number of customers, EOS, external growth opportunities, more sources of finance.