Chapter 8: Sources of Business Finance — Online MCQ Test
BUSINESS STUDIES · Grade 11 · CBSE(NCERT)
Practice Chapter 8: Sources of Business Finance with a free chapter-wise online MCQ test.
This chapter covers: This chapter covers business finance concepts short-term long-term funding sources retained earnings equity preference shares debentures commercial banks and financial institutions....
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Chapter 8: Sources of Business Finance — Important Questions & Answers
Which of the following is a source of internal finance?
- A. Issue of debentures
- B. Retained earnings
- C. Bank loan
- D. Public deposit
Answer: B. Retained earnings
Retained earnings are profits kept aside by the business and used for expansion or other needs. They are an internal source of finance.
Retained earnings are profits kept aside by the business and used for expansion or other needs. They are an internal source of finance.
Equity shares are also known as:
- A. Preference capital
- B. Owners' funds
- C. Borrowed capital
- D. Short-term loans
Answer: B. Owners' funds
Equity shareholders are the owners of the company and provide ownership capital. Hence, equity shares are called owners' funds.
Equity shareholders are the owners of the company and provide ownership capital. Hence, equity shares are called owners' funds.
A business uses profits retained in the company for future expansion. This source of finance is called:
- A. Issue of shares
- B. Retained earnings
- C. Bank overdraft
- D. Lease financing
Answer: B. Retained earnings
When profits are not distributed as dividends and are kept in the business, they become retained earnings. These can be used for expansion and other business needs.
When profits are not distributed as dividends and are kept in the business, they become retained earnings. These can be used for expansion and other business needs.
A firm wants funds but does not want to dilute ownership control. Which source is most appropriate?
- A. Issue of equity shares
- B. Retained earnings
- C. Fresh issue of shares to public
- D. Sale of ownership rights
Answer: B. Retained earnings
Retained earnings provide finance without bringing in new owners. Therefore, ownership control remains unchanged.
Retained earnings provide finance without bringing in new owners. Therefore, ownership control remains unchanged.
A company earns high profits every year but distributes very little dividend. Which of the following is the most likely effect of this policy?
- A. More dependence on outside borrowing
- B. Increase in retained earnings and self-financing capacity
- C. Immediate loss of ownership
- D. Reduction in internal finance
Answer: B. Increase in retained earnings and self-financing capacity
When a company retains a larger portion of its profits, retained earnings increase. This improves its ability to finance future needs internally.
When a company retains a larger portion of its profits, retained earnings increase. This improves its ability to finance future needs internally.