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6. Finance
6.1 Sources of finance
Factors influencing the choice of finance:
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Selling assets is an
internal
source of finance.
True
Match the source of finance with its description:
Retained profits ↔️ Earnings saved from past profits
Sale of assets ↔️ Selling unneeded assets
Loans ↔️ Borrowing from financial institutions
Crowdfunding ↔️ Raising funds online
What is a key advantage of loans as a source of finance?
Flexible repayment terms
What is the effect of lower interest rates on loan attractiveness?
Makes loans more attractive
Aligning finance with business needs can improve financial stability and growth
potential
Choosing the right source of finance is vital for achieving
business objectives
.
True
A tech start-up may seek venture capital to cover
start-up costs
and hire experts.
True
Selling unused assets is an example of an internal source of finance.
True
Crowdfunding involves raising funds from a large number of people
online
.
True
What are three factors that influence a business's choice of finance?
Size, amount needed, risk
Order the factors influencing finance selection from most general to most specific:
1️⃣ Size of the business
2️⃣ Amount needed
3️⃣ Length of time required
4️⃣ Interest rates
5️⃣ Risk
A tech start-up might attract venture capital to
scale
Aligning finance with business needs improves financial
stability
Bank loans have moderate interest rates and require
collateral
What are legal and regulatory restrictions affecting finance?
Securities laws, lending regulations
Corporate tax laws indirectly affect retained profits available for reinvestment.
True
Aligning finance with risk tolerance supports the long-term goals of the
organization
.
True
Retained profits are an example of an
internal
Money borrowed from banks is categorized as a
loan
Loans require collateral and interest, making them less suitable for high-risk
ventures
Smaller business needs can often be met by retained profits or
overdrafts
What type of financing is typically used for capital needs in a business?
Loans, venture capital
Aligning finance with business needs can improve financial stability and growth
potential
Loans, venture capital, and retained profits are typical financing options for
capital
Retained profits are earnings saved up from past
profits
Venture capital firms specialize in funding
start-ups
Venture capital dilutes ownership and requires strong growth
potential
Lower interest rates make loans more
attractive
What type of projects is venture capital willing to invest in?
High-risk projects
What are typical financing options for capital needs?
Loans, venture capital, retained profits
What does the cost of finance include?
Interest rates, fees, equity dilution
A new restaurant might prefer a bank loan due to its lower
initial cost
.
True
What can crowdfunding regulations affect?
Types of campaigns allowed
Entrepreneurs with low risk tolerance may prefer loans to maintain full
ownership
What are the two main categories of sources of finance?
Internal and external
What is one advantage of crowdfunding as a source of finance?
Builds customer engagement
What is a disadvantage of retained profits as a source of finance?
May delay dividends
Retained profits do not require
interest payments
.
True
Higher-risk ventures often seek loans rather than venture capital.
False
Choosing the right source of finance is vital for the
success
of the business.
True
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