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

Equity financing involves selling shares (ownership stakes) in the company to raise capital without incurring debt.

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

Interest on debt is typically tax-deductible, lowering the after-tax cost of borrowing compared to paying dividends on equity.

Question 3

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

Accepted Answer

The proportion of financing from debt versus equity

Answer

The debt-to-equity ratio = Total Debt ÷ Total Equity, showing the relative proportion of debt and equity used to finance assets.

Question 4

Retained earnings are best described as:

Accepted Answer

Profits kept in the business rather than paid out as dividends

Answer

Retained earnings are cumulative profits that the company has kept rather than distributing to shareholders as dividends.

Question 5

Venture capital is typically provided to:

Accepted Answer

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

Answer

Venture capital firms invest in early-stage, high-potential startups in exchange for equity, accepting high risk for potentially high returns.

Finance for Non-Finance Managers Practice Test