Finance

Question 1

Advantages of owners capital

Answer 1

1. The money does not have to be repaid

2. No intrest has to be paud

Question 2

Disadvantages of owner’s capital

Answer 2

1. May not have enough money

Question 3

Advantages of Bank Loan

Answer 3

1. The money can be obtained in one lump sum

2. Repayments can be spread over several years.

Question 4

Disadvantages of Bank Loam

Answer 4

1. The loan must be repaid-with interest

Question 5

Advantages of mortgage

Answer 5

1. Amount can be repaid over many years eg 25.

Question 6

Disadvantages of mortgage

Answer 6

1. Repayments may be high due to high interest rates

2. If repayments are not made then the property may be repossessed

Question 7

Advantages of a Grant

Answer 7

1. The money does not have to be repaid

2. A large amount of money can be received at one time

Question 8

Disadvantages of a Grant

Answer 8

There may be certain restrictions as to what the money can be used for

Question 9

Advantages of Re-invested Profit

Answer 9

1. There are no extra costs eg interest to be paid

Question 10

Disadvantages of Re-invested Profit

Answer 10

1. There may be insufficient money to fund the business

Question 11

Advantages of Hire Purchase

Answer 11

1. Allows businesses to buy assets with only a small initial payment
2. Once full payments have been made the asset is owned.

Question 12

Disadvantages of Hire purchase

Answer 12

1. The asset is not fully owned until the last payment is made.
2. The total paid is more tan the price of the asset

Question 13

Advantages of Leasing

Answer 13

1. Can obtain the asset without a large financial outlay.
2. Repairs are carried out by the leasing company free of charge.
3. Upgrades can be obtained when the lease runs out.

Question 14

Disadvantages of Leasing

Answer 14

You never own the asset

Question 15

Advantages of Trade Credit

Answer 15

1. Can buy goods and sell them on before payment s required.

2. Provided payment is made within the agreed number of months then no interest is charged.

Question 16

Disadvantages of Trade credit

Answer 16

1. May lose out prompt payment discounts.

2. May gain reputation as a slow payer

Question 17

Advantages of Factoring

Answer 17

1. Allow the business to receive cash immediately

2. Removes the inconvenience of chasing up late payments

Question 18

Disadvantages of Factoring

Answer 18

The service of the factor has to be paid for. The full values of the debts are never received

Question 19

Advantages of Issue Shares (Plc) or (Ltd)

Answer 19

Large amounts of money can be raised quickly

Question 20

Disadvantages of Issue Shares (Plc) or (Ltd)

Answer 20

Dividends have to be paid to shareholders which reduces the retained profit

Question 21

Describe Fixed costs

Answer 21

Fixed costs are which stay the same regardless of units produced or sold eg rent and rates. It doesn’t matter if we produce 1 unit or 1000 units our rent and rates

Question 22

Describe variable costs

Answer 22

Variable costs are costs which change directly with production eg materials and labour. The more we produce the more material we need hence our total bill for materials will increase with production.

Question 23

Advantages of break even analysis

Answer 23

1. You can see at a glance how many units need to be sold before a profit starts to be made
2. Can see how much profit or or less is being made at different levels of output.
3. It can aid decision making.

Question 24

Limitations of break even analysis

Answer 24

1. Difficult to use if the business makes more than one product
2. It assumes that all units produced are sold
3. Doesn’t take sudden increases in wages or prices into consideration

Question 25

A full explanation of a cash budget

Answer 25

A cash budget is a plan that prepares for internal use. it can be produced for a few moths o for the year ahead. The budget is complied on he estimated income (money from sales) and estimated expenditure (the costs involved). This budget shows how much money they think will be coming in each month and how much will be going out each month for the

Question 26

Profit of the year is the same as

Answer 26

Net Profit