Finance for Non-Finance Managers Business Finance and Funding 1

Question 1

What is equity financing?

Accepted Answer

Raising capital by selling ownership shares in the business

Answer

Borrowing money from a bank and repaying with interest

Answer

Issuing bonds to the public

Answer

Leasing assets instead of purchasing them

Question 2

What is the key advantage of debt financing over equity financing?

Accepted Answer

Interest payments are tax-deductible, reducing the effective cost

Answer

Debt does not need to be repaid

Answer

Debt does not affect the company's credit rating

Answer

Debt holders share in the company's upside profits

Question 3

A company's debt-to-equity ratio measures:

Accepted Answer

The proportion of financing from debt versus equity

Answer

How profitable the company is relative to its assets

Answer

How quickly the company generates cash from sales

Answer

The percentage of equity owned by management

Question 4

Retained earnings are best described as:

Accepted Answer

Profits kept in the business rather than paid out as dividends

Answer

Loans retained by the bank for reinvestment

Answer

Cash reserves held in a special account

Answer

Government grants retained by the company

Question 5

Venture capital is typically provided to:

Accepted Answer

Early-stage or high-growth companies with significant risk and potential

Answer

Large, established public companies needing expansion funds

Answer

Government agencies for infrastructure projects

Answer

Retirees seeking low-risk investment returns

Question 6

What does 'leverage' mean in a financial context?

Accepted Answer

Using borrowed funds to amplify potential returns (and losses)

Answer

Using physical machinery to increase production efficiency

Answer

Negotiating lower interest rates with lenders

Answer

Increasing the company's equity base through share issuance