Unit 6

Question 1

Why does a business need finance ?

Answer 1

. Start-up costs and running costs
.expansion,replace worn-out assests

Question 2

Factors affecting the choice of finance

Answer 2

.The amount needed
.the reason why the finance is required
.the legal status the businesshas

Question 3

Internal .

Answer 3

.Involves raising funds from within the business e.g Retained profit
.often internal sources may be limited

Question 4

External.

Answer 4

Involves raising funds from outside the business. This allows businesses to raise larger amounts of funds e.g Mortgage.

Question 5

Internal.

Answer 5

.involves raising funds from within the business e.g Retained profit
.often internal sources may be limited

Question 6

Internal -Owners Funds

Answer 6

Benefits- provides a strong signal to other potential investors and the bank of the entrepreneurs commitment to the business.

Question 7

Drawbacks- owners funds

Answer 7

The amount that is available may be limited resulting in the entrepreneurs commitment to the business.

Question 8

Internal-Retained Profit (Benefits)

Answer 8

. A cheap form of finance, as no internet has to be paid

Question 9

Internal-Retained Profit (drawbacks)

Answer 9

.if a business needs some temporary finance-means its facing difficulties.

Question 10

Internal-selling unwanted assests

Answer 10

Such as spare land,buildings,machinery or equipment that are no longer needed by the business, can result in extra finance being generated on on a one-off basis.

Question 11

Benefits

Answer 11

.using this method will mean that no finance needs to be repaid
.the business owners keep full control of the organisation

Question 12

Drawbacks

Answer 12

It is unlikely to be a long-term solution for most businesses that needs to raise finance as money will be ra