9.1 Sources of long-term finance

Question 1

Why is capital important for a company?

Answer 1

To be able to purchase non-current assets such as land, property and machinery, enter new markets, expand its business etc.

Question 2

WHow is long-term finance usually defined?

Answer 2

Financing obtained over a period of more than a year.

Question 3

What are the two broad types of finance?

Answer 3

Equity finance and debt finance.

Question 4

What is equity finance?

Answer 4

The finance relating to the owners or equity shareholders of the business who jointly exercise ultimate control through their voting rights (i.e. issued share capital plus reserves or retained earnings.

Question 5

What is debt finance?

Answer 5

Borrowed finance to be paid back at a future date with interest

Question 6

What are examples of equity finance?

Answer 6

Shares

Retained earnings or internally generated funds

Question 7

What are examples of debt finance?

Answer 7

Preference shares
Debentures
Bank and institutional loans
Leasing
Hire purchase
Secularization of assets
Private finance initiatives (PFI)