Chapter 4 COMMERCE : Sources of Business Finance — Online MCQ Test
COMMERCE · CLASS 11 INTER I YEAR · Andhra State Board
Practice Chapter 4 COMMERCE : Sources of Business Finance with a free chapter-wise online MCQ test.
This chapter covers: This chapter details short-term medium-term and long-term financial sources including shares debentures retained earnings commercial bank loans and trade credit..
AI-generated questions from basic to board-exam level, with instant results and explanations.
Chapter 4 COMMERCE : Sources of Business Finance — Important Questions & Answers
Which of the following is considered a source of short-term finance?
- A. Issue of Debentures
- B. Trade Credit
- C. Preference Shares
- D. Public Deposits
Answer: B. Trade Credit
Trade credit is a facility provided by suppliers to business firms for the purchase of goods, typically for a short duration.
Trade credit is a facility provided by suppliers to business firms for the purchase of goods, typically for a short duration.
The funds generated internally by a company by keeping a part of the profit is called ________.
- A. Retained Earnings
- B. Equity Shares
- C. Bank Overdraft
- D. Loan from IDBI
Answer: A. Retained Earnings
Retained earnings, also known as ploughing back of profits, is the portion of net profit not distributed as dividends.
Retained earnings, also known as ploughing back of profits, is the portion of net profit not distributed as dividends.
Which source of finance involves a legal agreement between a bank and a business to withdraw more money than deposited in a current account?
- A. Term Loan
- B. Bank Overdraft
- C. Leasing
- D. Factoring
Answer: B. Bank Overdraft
Bank overdraft is a credit facility that allows an account holder to withdraw funds beyond the account balance up to an agreed limit.
Bank overdraft is a credit facility that allows an account holder to withdraw funds beyond the account balance up to an agreed limit.
If a company wants to minimize the cost of capital, why might it prefer debt over equity?
- A. Interest paid on debt is a tax-deductible expense.
- B. Debt does not require any repayment of the principal amount.
- C. Debt increases the voting power of the management.
- D. Debt holders have the highest claim on assets in case of liquidation.
Answer: A. Interest paid on debt is a tax-deductible expense.
Interest on debt is treated as a business expense and is tax-deductible, reducing the effective cost of debt compared to dividends paid out of post-tax profits.
Interest on debt is treated as a business expense and is tax-deductible, reducing the effective cost of debt compared to dividends paid out of post-tax profits.
If a company is in a phase of 'financial distress', which source of finance would be most risky for the firm to maintain?
- A. Retained Earnings
- B. Equity Shares
- C. Debentures
- D. Issue of fresh shares
Answer: C. Debentures
Debentures require fixed interest payments regardless of company profit levels, making them high-risk during financial distress.
Debentures require fixed interest payments regardless of company profit levels, making them high-risk during financial distress.