ASSIGNMENT 7- Part II

SOURCES OF FINANCE

Q1. A portion of the net earnings may be kept in the business for use in the future.
Name it.
Q2. Name a source of finance which is a permanent burden on the earnings of a
company.
Q3. It is a source of internal financing or self-financing
Q4. _________________is a permanent source of funds available to an
organisation.
Q5. Name the source of finance which does not involve any explicit cost.
Q6. In which form of finance there is a greater degree of operational freedom and
flexibility for its usage?
Q7. It is an uncertain source of funds. Name it.
Q8. Which source of finance is less costly? Why?
Q9. Name the source of finance which is commonly used by business
organisations as a source of short-term financing.
Q10. an acknowledgment that the company has borrowed a certain amount of
money, which it promises to repay at a future date. Identify.
Q11. Give an example of Long term debt capital.
Q12. ______________are fixed charge funds and do not participate in profits of the
company.
Q13. Public issue of debentures requires that the issue be rated by an agency.
Name it.
Q14. The deposits that are raised by organisations directly from the public are
known as_______________.
Q15. Equity shareholders are referred to as ________________ since they receive
what is left after all other claims on the company’s income and assets have been
settled.
Q16. Which source of finance does not create any charge on assets?
Q17. Retained earnings is also called ___________.
Q18. Cost of public deposits is generally __________ than the cost of borrowings
from banks and financial institutions.
Q19. Name an unreliable source of finance.
Q20. _________________is a prerequisite to the creation of a company.
Q21. The capital of a company is divided into small units called_______________.
Q22. Which source of finance reduces the borrowing capacity of a company?
Q23. The capital obtained by issue of shares is known as______________.
Q24. The person holding the share is known as________________.
Q25. Equity shares represent the ownership of a company and thus the capital
raised by issue of such shares is known as________________.
Q26. Which type of shares are suitable for investors who are willing to assume risk
for higher returns?
Q27. The cost of equity shares is ____________ as compared to the cost of
raising funds through other sources
Q28. Name the source of finance that provides credit worthiness to the company
and confidence to prospective loan providers
Q29. Name the type of shares which is suitable for those investors who want fixed
rate of return with comparatively low risk.
Q30. Finance in the form of cash credits, overdrafts, purchase/discounting of bills,
and issue of letter of credit is which source of finance.
Q31. Name the agencies which are established by the central as well as state
governments and provide both owned capital and loan capital for long- and
medium-term requirements.
Q32. Identify the source of finance which provides funds for different purposes as
well as for different time periods.
Q33. If an organisation wants to increase its inventory level in order to meet
expected rise in the sales volume in the near future, which source of finance is
most suitable?
Q34. ____________________is a flexible source of finance as the loan amount
can be increased according to business needs and can be repaid in advance
when funds are not needed.
Q35. As financial institutions aim at promoting the industrial development of a
country, these are also called_______________.
Q36. Obtaining loan from financial institutions ____________ the goodwill of the
borrowing company in the capital market.
Q37. Which source of financing is considered suitable when large funds for longer
duration are required for expansion, reorganisation and modernisation of an
enterprise?
Q38. Trade credit appears in the records of the buyer of goods as
__________________.
Q39. Which source of finance are made available even during periods of
depression, when other sources of finance are not available?
Q40. Name the source of finance which can be repaid in easy instalments so it
does not prove to be much of a burden on the business.
Q41. _________________ is payable only when there are profits available to the
company.
Q42. _________________is a convenient and continuous source of funds.
Q43. Name the type of debentures in which the company has to make provisions
for repayment on the specified date, even during periods of financial difficulty.
Q44. In addition to providing financial assistance, they also conduct market surveys
and provide technical assistance and managerial services to people who run the
enterprises. Identify the source of finance highlighted.
Q45. Debenture holders are termed as ________________ of the company.
Q46. __________________provide timely assistance to business by providing
funds as and when needed by it.
Q47. The capital raised by issue of preference shares is called
________________.
Q48. Name the source of finance which is preferred by investors who want fixed
income at lesser risk.
Q49. Return on borrowers funds is called _________________.
Q50. Name the profit which is distributed amongst the shareholders.
Q51. Name the type of shares which does not bear any voting rights.
Q52. ________________ serves as permanent capital as it is to be repaid only at
the time of liquidation of a company.
Q53. _______________is the most important source of raising long term borrowing
capital by a company.
Q54. Borrower’s funds puts a lot of burden on the business as payment of
______________is to be made even when the earnings are low or when loss is
incurred.
Q55. Return on owner’s funds (equity and preference shares) is
called__________________
Q56. ________________ to promote the sales of an organisation.
Q57. Funds for its day-to-day operations is known as _______________.
Q58. The funds required in fixed assets remain invested in the business for a long
period of time is called _____________________.
Q59. ___________are unsecured short terms deposits made by one company with
another company.
Q60. Abhimanyu Ltd is manufacturing cotton shirts for men. It is planning to expand
its business by opening more unit in another city. It has been consistently earning
good profits. So, there are sufficient reserves. State the most appropriate source
of finance for the company.
Q61. Trinity Ltd is a company which manufactures blankets. The company needs
additional capital for expansion of business. So, it issues 50,000 shares of the
face value of 100 rupees each. Before issuing shares for the management of the
company they decided they would issue such shares which will not impose any
fixed financial charges. In the prospectus, they mentioned that in the coming
years, the company expected to earn a big profit and as a result, the investors
would be able to earn extra dividends. The company collected money from the
public and the company’s business expanded.
Identify and explain the type of shares issued by Trinity Ltd.
Q62. Madhu Ltd. Is a company manufacturing garments for children. It has been
consistently earning good profits for many years. This year too, it has been able
to generate enough profits. There is availability of enough cash in the company. It
believes in quality of product, equal employment opportunities and good
remuneration. It has many shareholders who prefer to receive a fixed and regular
income. Mohan is one such shareholder.
Which type of shares Mohan holds?
Q63. Radhika Ltd has good growth prospectus. So, it is planning to expand their
business. For this the company needs additional funds. The finance manager
reports that the company is not in a position to bear extra burden of paying any
fixed financial charges like interest or dividend. They do not want to bear any
floatation cost even. Also, the equity shareholders insist not to issue further
shares as there is risk of dilution of control.
 Suggest and explain the most suitable source of finance.
Q64. Krishna Ltd is facing shortage of long-term finance as it is a period of
depression in the economy. The experts were consulted to determine the source
of finance the company should raise. One financial advisor, Mr Ram advised that
the company should use such a security on which it has a tax advantage and
there is no dilution of control of the shareholders. Another financial specialist, Mr.
Shiv advised that the company should not issue any debt or equity security but
raise such a long term finance which can be redeemed in easy installments.
Quoting the relevant lines from the above paragraph identify and explain the
source of finance suggested by the two specialists, Mr Ram and Mr Shiv.
Q65. Madhav Sales Pvt Ltd owns the agency of different food productsm which
sells goods of different brands to retailers after purchasing them from several
companies. It purchases almost all goods for cash while its all sales are on credit
of one month. So the company keeps struggling with the short term finance. To
overcome this problem, the company’s finance department held a meeting. The
chairperson of the meeting asked the members to express their views on the
solution of this problem. The first person said, we should use a source of finance
which does not involve any bureaucracy and legal problems and the market of
which maintains secrecy. The second person’s opinion was that the company
often needs cash credit and overdraft. Therefore, the source of finance should be
selected considering this fact. The view of the third person was that the company
also should buy goods on credit. The chairperson of the meeting listened to the
suggestions of all and, to take the final decision, asked them to be present in a
meeting the next week.
Quoting the relevant lines from the above paragraph, identify and explain the
sources of finance suggested by the different persons.