Chapter 4 Test ITB
1 A startup wants to raise funds without taking on debt but wishes to share future
profits with investors. Which financing method is most suitable?
A) Issue equity shares B) Take a term loan
C) Both Option A and B C) Both Option A and B
2 A manufacturing company needs immediate funds for a large order but has limited
assets to pledge. Which financing option should it consider?
A) Equity capital B) Unsecured debt
C) Both Option A and B D) None of the above
3 An established corporation aims to expand internationally and is willing to dilute
ownership. What type of financing aligns with this goal?
A) Commercial bank loan B) Public equity offering
C) Both Option A and B D) None of the above
4 A retail business decides to issue convertible bonds to raise funds. What is the
primary advantage of this decision?
A) Retain ownership control B) No repayment obligations
C) Both Option A and B D) None of the above
5 A tech company in its growth phase needs significant funding for R&D but lacks
sufficient collateral. Which funding source would suit this situation?
A) Debentures B) Bank loans
C) Both Option A and B D) None of the above
6 A small business secures a loan where the lender also takes a minority stake in the
business. What type of financing is this?
A) Hybrid financing B) Convertible debt
C) Both Option A and B D) None of the above
7 An investor is interested in low-risk investments with fixed returns. Which financing
instrument aligns with this preference?
A) Corporate bonds B) Cumulative Preference shares
C) Both Option A and B D) None of the above
8 A business faces a cash flow shortfall and needs immediate funding for one month.
What financing source is suitable?
A) Trade Credit B) Factoring
C) Both Option A and B D) None of the above
9 A company wishes to increase its financial leverage. What action would achieve this?
A) Issuing bonds B) Issuing common equity
C) Both Option A and B D) None of the above
10 A company has surplus retained earnings but chooses to raise additional funds by
borrowing. What financial strategy is this an example of?
A) Debt over internal funding B) Prioritizing external debt over equity
C) Both Option A and B D) None of the above
11 A company's board is concerned about high bankruptcy costs. What type of financing
should they reduce?
A) Debt financing B) Retained earnings
C) Both Option A and B D) None of the above
12 A firm is considering either issuing bonds or approaching a private equity firm for
expansion funding. The market sentiment is unpredictable. Which option suits it
best?
A) Bonds for predictable interest payments B) Private equity for strategic
partnerships
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C) Both Option A and B D) None of the above
13 A pharmaceutical company decides to raise funds by offering additional shares only
to existing shareholders. What is this called?
A) Rights issue B) Initial public offering
C) Both Option A and B D) None of the above
14 A private company is hesitant about public disclosures but needs funding for
expansion. What is a viable option?
A) Private equity B) Issuing bonds to Private Investors
C) Both Option A and B D) None of the above
15 A company prefers long-term financing that avoids ownership dilution and chooses a
fixed-rate debt instrument. What is this decision called?
A) Opting for secured debt B) Avoiding equity financing
C) Both Option A and B D) None of the above
16 A startup's founder negotiates funding in exchange for a 20% ownership stake. What
type of financing is this?
A) Equity financing B) Hybrid financing
C) Both Option A and B D) None of the above
17 A company faces a low credit rating but strong growth potential. Which financing
source is more viable?
A) Issuing Shares of Cash B) Committed Lines Of Credit
C) Both Option A and B D) None of the above
18 A firm not having sufficient Collateral needs to ensure tax deduction of its financing
costs. Which method of financing is preferred?
A) Preference Shares B) Debentures
C) Term Loan D)Trade Credit
19 A company is heavily leveraged and avoids taking additional loans. However, it also
resists issuing equity due to market undervaluation. What would be a wise
approach?
A) Retained earnings utilization B) Asset-backed borrowing
C) Both Option A and B D) None of the above
20 A firm prefers financing with no repayment obligations but agrees to profit sharing.
Which option aligns with their choice?
A) Preferred stock B) Right Issue
C) Both Option A and B D) None of the above
21 A startup in a competitive market raises funds from investors but avoids issuing
convertible bonds due to their long-term implications. What best describes this
approach?
A) Conservative financing strategy B) Risk-averse funding decision
C) Both Option A and B D) None of the above
22 A small enterprise takes a short-term loan to cover operating expenses. What type of
financing is this?
A) Working capital financing B) Term loan
C) Both Option A and B D) None of the above
