Q.1 Which of the following is a short-term source of business finance?
Equity shares
Debentures
Trade credit
Preference shares
Explanation - Trade credit is extended by suppliers to businesses, allowing them to pay later. It is typically short-term, unlike equity or debentures which are long-term.
Correct answer is: Trade credit
Q.2 Equity shares represent:
Ownership in the company
Debt to the company
Fixed interest claim
Short-term borrowing
Explanation - Equity shares provide ownership rights to shareholders, who can vote and share profits through dividends.
Correct answer is: Ownership in the company
Q.3 Which of the following is considered internal financing?
Retained earnings
Debentures
Commercial paper
Bank loans
Explanation - Retained earnings are profits reinvested in the business, making them an internal source of finance.
Correct answer is: Retained earnings
Q.4 Debenture holders are:
Owners of the company
Creditors of the company
Employees of the company
Promoters of the company
Explanation - Debenture holders lend money to the company and receive fixed interest, making them creditors, not owners.
Correct answer is: Creditors of the company
Q.5 Which of the following is NOT a long-term source of finance?
Bank overdraft
Debentures
Equity shares
Preference shares
Explanation - A bank overdraft is used for short-term needs, while the others are long-term financing methods.
Correct answer is: Bank overdraft
Q.6 Venture capital is usually provided to:
Established businesses
Government firms
Start-ups with high growth potential
Non-profit organizations
Explanation - Venture capital is financing provided to start-ups and small businesses with high growth prospects but higher risks.
Correct answer is: Start-ups with high growth potential
Q.7 Which of the following instruments represents ownership capital?
Equity shares
Debentures
Bonds
Loans
Explanation - Equity shares represent ownership in a company, unlike debentures, bonds, or loans, which are debt instruments.
Correct answer is: Equity shares
Q.8 Public deposits are collected from:
Government agencies
General public
Banks
Employees only
Explanation - Public deposits are funds collected directly from the general public by a company for a fixed period of time.
Correct answer is: General public
Q.9 A company prefers issuing preference shares because:
They dilute ownership control
Dividend is compulsory
They carry fixed dividend but no voting rights
They are short-term funds
Explanation - Preference shares provide fixed dividend benefits but do not give voting rights, thus preserving ownership control.
Correct answer is: They carry fixed dividend but no voting rights
Q.10 Which financial source is suitable for financing seasonal working capital needs?
Equity shares
Bank overdraft
Debentures
Preference shares
Explanation - A bank overdraft is flexible and suitable for meeting seasonal working capital requirements of businesses.
Correct answer is: Bank overdraft
Q.11 Which source of finance involves reinvesting profits instead of distributing them?
Debentures
Retained earnings
Trade credit
Public deposits
Explanation - Retained earnings are profits kept in the business for reinvestment rather than distributing them as dividends.
Correct answer is: Retained earnings
Q.12 Commercial banks provide:
Only long-term loans
Short-term and medium-term loans
Equity financing
Government grants
Explanation - Commercial banks usually provide short-term and medium-term loans and working capital financing.
Correct answer is: Short-term and medium-term loans
Q.13 Angel investors usually invest in:
Large corporations
Government-owned firms
Early-stage businesses
Non-profits
Explanation - Angel investors provide capital to early-stage businesses in exchange for equity ownership.
Correct answer is: Early-stage businesses
Q.14 Which of the following is a merit of retained earnings?
Increases external liability
Dilutes ownership
No flotation cost
Dividend is mandatory
Explanation - Retained earnings do not involve flotation costs, unlike issuing shares or debentures which require expenses.
Correct answer is: No flotation cost
Q.15 Which is a demerit of raising finance through equity shares?
Fixed interest obligation
Dilution of control
Short-term repayment
Compulsory redemption
Explanation - Issuing more equity shares dilutes ownership control as new shareholders gain voting rights.
Correct answer is: Dilution of control
Q.16 The main disadvantage of debt financing is:
Ownership dilution
Fixed repayment obligation
Uncertain dividend
Control sharing
Explanation - Debt requires regular repayment of principal and interest regardless of profit, which is risky for firms.
Correct answer is: Fixed repayment obligation
Q.17 Which source of finance is most risky for investors?
Equity shares
Preference shares
Debentures
Bank loans
Explanation - Equity shareholders get paid last during liquidation, making it riskier compared to preference or debt holders.
Correct answer is: Equity shares
Q.18 Which of the following is a feature of debentures?
Carry voting rights
Provide ownership
Carry fixed interest
Dividends are paid
Explanation - Debentures carry fixed interest obligations and represent creditors of the company, not owners.
Correct answer is: Carry fixed interest
Q.19 Which financing method is cheapest for a company?
Equity shares
Debentures
Retained earnings
Preference shares
Explanation - Retained earnings are the cheapest as they do not involve flotation or interest costs.
Correct answer is: Retained earnings
Q.20 An advantage of preference shares for investors is:
Voting rights
Fixed dividend
Capital appreciation
Residual claims
Explanation - Preference shareholders get a fixed dividend, which is less risky compared to equity dividends.
Correct answer is: Fixed dividend
Q.21 Which of the following represents a hybrid source of financing?
Equity shares
Preference shares
Debentures
Public deposits
Explanation - Preference shares are hybrid as they have characteristics of both equity (ownership) and debt (fixed dividend).
Correct answer is: Preference shares
Q.22 Which of the following is a limitation of public deposits?
Costly to arrange
Short-term availability
Control dilution
Mandatory redemption after 20 years
Explanation - Public deposits are generally short-term and unsuitable for long-term financing needs.
Correct answer is: Short-term availability
Q.23 Which type of finance is suitable for fixed capital requirement?
Trade credit
Equity shares
Bank overdraft
Commercial paper
Explanation - Fixed capital requirements like machinery purchase are best financed by long-term sources such as equity.
Correct answer is: Equity shares
Q.24 Which of the following is considered a short-term instrument?
Debentures
Equity shares
Commercial paper
Preference shares
Explanation - Commercial paper is a short-term unsecured promissory note issued by companies to raise funds.
Correct answer is: Commercial paper
Q.25 Government grants are classified as:
Internal source of finance
External non-repayable source
Equity capital
Debt capital
Explanation - Government grants are external financial support and are not required to be repaid, unlike loans.
Correct answer is: External non-repayable source