Unit 3.1: Sources of Finance Flashcards

Question

Describe the business growth External (Short term) (DOUBLE CHECK USING PPT.)

Answer 1

Mergers, Acquisitions, Joint Ventures, Strategic Alliance

Answer 2

1.) Long term - may be paid back after many years 2.) Short term - used to cover fluctuations in cash flow 3.) ‘Inorganic Growth’ - growth via acquisition

Answer 3

**Similarities** - Mortgages are a loan **Differences** - Mortgages have a collateral

Answer 4

A loan secured by real property

Answer 5

Act on behalf of clients to organize and underwrite (guaranteeing the sale of new securities for investors) raiding finance (acquiring companies via large debt for the purchase) - for high-net individuals or corporations rather than general public

Answer 6

1.) Bank loans - paying interest on payment AND - fast: repayment periods from 1+ years 2.) Overdraft facilities - the right to be able to withdraw funds that you do not currently have - provides flexibility for firm - interest only paid on the amt overdrawn - overdraft limit/credit - the max limit to be withdrawn; must be depositor of a bank 3.) Trade credit - Strike a deal with a supplier wherein you don’t have to pay cash / promise to pay at a later date (credit) 4.) Factoring - Go to a factoring company, sell credits for them to get the money now from ppl who owe you. - for immediate 5.) Leasing - Lending a capital to get money

Answer 7

1.) **Merger** - A + B = C 2.) **Acquisition/Takeover** - pacman

Answer 8

**Philanthropists that help small businesses/start ups and they give a small interest** - may or may not ask for ownership equity - will get ownership if not paid

Answer 9

Very professional, looking for investment opportunities usually for smaller businesses and start ups — *private equity* - needs a *deed of credit* w/ *business plan* (bc gonna be using a lotta money) - aims to *gain part of company*

Answer 10

- purpose or use of the funds - all costs involved in source of finance - status and size of the company (e.g. banks only accept LC’s, missed loans) - amt required - flexibility in switching from one source to another - state of external environment (bad -> high i%) - gearing

Answer 11

An agreement wherein the buyer can obtain goods/services and promise to pay them later

Answer 12

How well the company makes use of money

Answer 13

1.) Can this finance be raised through internal sources? 2.) If external, debt or equity? 3.) What form will the finance be raised (e.g. bonds, shares, cash. etc.)

Answer 14

Ofc it may depend BUT *the depreciation rate for long-term loans*

Answer 15

Binds are a type of “loan” wherein a company pays another company and the other company has to pay them back

Answer 16

the total amount of credits to pay

Answer 17

expenditure to fund a business’ long term growth

Answer 18

when a business is funded by a larger number of people contributing small amount of money each

Answer 19

- crowdfunding provides access to thousand of investors who can see, interact with and share a project’s fundraising - good marketing via online platforms - opportunity for feedback and guidance - business maintains full control — business decides how to structure the campaign, how much to ask for and how to operate - good alternative finance option

Answer 20

- strong competition - subject to scrutiny if public upset - fees need to be paid

Answer 21

- equity capital — sale of shares; - buyers of shares; - public limited companies sale shares via *stock exchange*;

Answer 22

- aka *debt capital*; - money sourced from financial institutions;

Answer 23

The amount of money you’re allowd to borrow (usually based on your deposits — e.g. if you have 5 mil deposit, you can withdraw 5 mil)

Answer 24

- Retained profit (long) - Personal funds (short) - Sale of assets (short)

Answer 25

- short term - long term

Answer 26

- bank overdraft - hire purchase - trade credit - leasing - debt forecasting

Answer 27

- mortgage - debentures - business angels - venture capitalists - bank loans

Answer 28

Business Sells Invoices: A business sells its unpaid invoices to a factoring company. Gets Immediate Cash: The business gets cash now (less than invoice total). Factor Collects Payments: The factor collects the full invoice amount from customers. Factor's Fee: The factor keeps the difference as their fee.

Answer 29

Financial arrangement where an individual or business **acquires an asset through a series of payments**, and *ownership of the asset is transferred only after all payments have been made.* Here’s how it works and what it involves:

Answer 30

allows a business to temporarily overdraw on its bank account, i.e., t**to take out more money than it has in its account.**

Answer 31

Creditor of the company, not an owner. - This means that holders are entitled to an agreed fixed rate of return, but have no voting rights and the amount borrowed must be repaid by the expiry date.

Answer 32

Limited companies only - Because it's more secure---imagine you have no control over a block of dice but the person who dealt you a block of dice has a lot of resources. You'd feel more secure. - Asides from that it's so the burden of paying back the debentures rest on the company's hands instead of the owners (good to separate personal funds and assets)

Answer 33

Both of these involve companies giving businesses money but grants are usually one-time and for specific projects whereas the subsidies are for industries and are ongoing

Answer 34

Advantages: - quick and easy to get equipment Disadvantages: - interest rates are higher - the good can be taken away from the buyer if their payment is late

Answer 35

Advantages: - No large sums of money need to be allocated for the purchase of the equipment. - Useful when equipment is used occasionally. - Maintenance is not the responsibility of the user. Disadvantages: - in the long term, more expensive than the outright purchase - interest rates are higher - not able to secure any loans with another institution on assets that are leased

Unit 3.1: Sources of Finance Flashcards

(60 cards)