Chapter 19

Sources of Intermediate and Long-term

Financing: Debt and Equity
1. The term used for bonds that are unsecured is:
a. Treasury bonds
b. Convertible bonds
c. Income bonds
d. Debenture bonds
2.  Businesses might choose to use external sources of finance because
a. There are no interest charges
b. Potential cash flow problems are avoided
c. There is insufficient retained profit
b. There is an expected rise in interest rates
3. Which of the following is NOT a source of external financing for a public limited
company
a. Overdraft
b. Retained profits
c. Debentures
d. Share capital
4. Which of the following is a drawback to a business that issues debentures
a. Lenders do not have any voting rights
b. There is a dilution of ownership
c. There is dilution of control
d. The value of liabilities increases
5. Debentures can best be described as a form of
a. Long-term loan with a fixed interest rate
b. short-term loan with variable interest rates
c. Medium-term loan with variable interest rates
d. Long term security giving the holder part ownership of the business
6. Which of the following statements about overdrafts is not true?
a. It's really a small, short term loan
b. Cheap - the interest rate is usually lower than that of a long-term bank loan
c. It's flexible, in that it can be used whenever it is needed
d. Short term source of finance
7. The contract used to raise finance by selling the freehold of an asset and then renting it
back immediately on a long-term basis is known as
a. Trade creditors
b. Working capital
 c. Fixed assets
d. Sale and leaseback
8. Long term loans need to be repaid for
a. Within a year
b. More than a year
c. More than five years
d. More than ten years
9. What is an advantage of a bank loan?
a. You can pay in smaller installments
b. You don't have to pay it back
c. They are quick and easy to arrange
d. There will be little or no interest
10. An amount of money that is paid back within an agreed amount of time, with interest
a. Bank loan
b. Grants
c. Retained profit
d. Overdraft