IB Business Management 3.1 Questions and Answers ( 100% pass)

IB Business Management 3.1 Questions and Answers ( 100% pass) Internal Finance - ANS- Money raised from the business's own assets or from profits left in the business (retained profits) External Finance - ANS- Money raised from sources outside the business (e.g. share issue, leasing, bank loan) Retained Profit - ANS- The profit left, after all, deductions, including dividends, have been made. This is 'ploughed back' into the company as a source of finance Overdraft - ANS- Bank allows a business borrowing up to an agreed limit as and when required. Debt-Factoring - ANS- Selling of claims over debtors to a debt factor in exchange for immediate liquidity. Hire Purchase - ANS- assets sold to companies that agree to pay fixed repayments Leasing - ANS- renting a product Venture Capital - ANS- high risk capital invested in start-up businesses. good profit potential. are not easy to obtain finance from other sources Business Angels - ANS- individuals who invest personal capital in a variethy of businesses Subsidies - ANS- financial support from the government used to lower operating costs Initial Public Offering - ANS- business converting its legal status to a PLC by selling its shares on stock exchange Loan Capital - ANS- refers to medium to long-term sources of interest- bearing finance obtained from commercial lenders. Examples include mortgages, business development loans and debentures. Revenue Expenditure - ANS- refers to spending on the day-to-day running of a business, such as rent, wages and utility bills. Sale-and-leaseback - ANS- external finance: business sells a fixed asset but immediately leases it back Share capital - ANS- money raised form selling shared in a PLC Share issue - ANS- when a PLC raises finance by selling shares Sources of finance - ANS- is the general term used to refer to where or how businesses obtain their funds, such as from personal funds, retained profits, loans and government grants. Trade Credit - ANS- allows a business to 'buy now and pay later'. The credit provider does not receive any cash from the buyer until a later date (usually allow between 30-60 days). Capital Expenditure - ANS- is investment spending on fixed assets such as the purchase of land and buildings. Grants - ANS- are government financial gifts to support business activities. They are not expected to be repaid by the recipient. Retained profit benefits - ANS- -cheap -permanent SOF -flexible, can be used in a way the business deems fit -owners have control of their retained profit Limitations of retained profit - ANS- -startup businesses will not have any retained profit -if retained profit is too low, it may not be sufficient for growth -owners may overuse retained profit -a high retained profit may mean that either little or nothing was paid out to shareholders as dividends Influencing the choice of sources of finances - ANS- purpose or use of funds cost status and size flexibility state of external environment gearing