Test Paper of Ch-8

Marks: 30 / Duration: 60 minutes

Question 1 to 10 carries 1 mark each

1. Which source of finance is tax efficient? Why?

2. The rate of dividend on preference shares is generally higher than the rate of interest on debentures.
(True/False)
3. _______ is used for holding current assets such as stock of material, bills receivable and meeting current
expenses like salaries, wages, taxes and rent.
A. Current assets. B. Current liabilities.
C. Working capital. D. Operating capital.
4. ____________ of credit extended depends upon factors such as reputation of the purchasing firm,
financial position of the seller, volume of purchases, past records of payment and degree of competition
in the market.
A. Amount. B. Volume and period. C. Frequency. D. All of the above.
5. State the most economical source of finance from following:
A. Retained earnings B. Equity shares.
C. Preference shares. D. Debentures.
6. A business can generate funds internally by ____________
A. Acceleration of collection of receivables. B. Disposable of surplus inventory
C. Ploughing back of profits. D. All of the above.
7. State the most expensive source of finance from following.
A. Trade credit. B. Debentures.
C. Preference shares. D. Retained earnings.
8. Debentures represent ___________.
A. Fixed capital of the company B. Fluctuating capital of the company
C. Permanent capital of the company D. Loan capital of the company
9. Shares are pre-requisite for the creation of company. True/False.
10. The loan taken from a bank can be repaid either on __________ or ___________ basis.

Question 11 to 15 carries 4 marks each

11. Explain the following concept in detail (four points each):

A. Commercial bank. B. Development banks
12. Explain any four features of source of business finance which provides cushion for creditors in the event
of winding up of the company.
13. Explain the concept of Inter-corporate deposits in brief.
14. Santosh is working as a finance manager in a German company producing remote operated high-end
kitchen equipment. Considering festival demand, the company needs to increase its stock of raw material
and finished goods which will require funds of Rs. 50 lakhs. The directors of the company have decided
to expand the business by operating one more factory in India which will require funds of Rs. 3 crore and
one branch in America requiring Rs. 6 crore and one branch in Sri Lanka requiring Rs. 5 crore investment.
Explain the working capital and fixed capital requirements of the business.
15. Present the classification of Business finance on following basis:
A. Period B. Ownership C. Source of generation

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