Finance

Question 1

Give internal sources of finance

Answer 1

Retained profit
Sale of assets
Trade credit:
-Negotiating longer credit periods with suppliers
-Giving shorter credit periods to customers

Question 2

Give external sources of finance

Answer 2

Loan capital
Overdraft
Venture capital
Share Capital
Own money

Question 3

Describe and evaluate loan capital

Answer 3

Typically repaid in monthly instalments
Usually collateral required

+most common source of finance
-interest payments

Question 4

Describe and evaluate overdraft

Answer 4

Allows to withdraw more money from the bank than what is in the bank account

+flexible
short-term
-interest is calculated on a daily basis
-can be recalled at very short notice

Question 5

Describe and evaluate venture capital

Answer 5

+for risky businesses that would normally not get a bank loan
+venture capital have experience and bring in knowledge and networks
long-term source of finance
-get an equity stake in the business
-dilutes control

Question 6

Describe and evaluate share capital

Answer 6

Raise new shares
very long-term

+ unlike for loans, no interest has to be paid
- dilutes ownership and control of company

Question 7

Describe and evaluate own money

Answer 7

From:

• personal savings
• inherited funds
• personal bank loans

If the business fails the owner losses his investment or assets

Question 8

Define break even

Answer 8

Point where business is not making a profit or a loss