Sources of Corporate Finance: Master Corporate Funding Strategies

Question 1

What type of financing involves the issuance of shares to investors in exchange for ownership equity in the company?

Accepted Answer

Equity financing

Answer

Debt financing

Answer

Venture capital

Answer

Hybrid financing

Question 2

Which type of debt financing involves the issuance of bonds that represent a loan from investors to the company?

Accepted Answer

Bonds

Answer

Term loans

Answer

Overdrafts

Answer

Convertible debt

Question 3

Which type of financing is most suitable for meeting short-term liquidity needs?

Accepted Answer

Invoice discounting

Answer

Equity financing

Answer

Bank loans

Answer

Venture capital

Question 4

Which factor is typically NOT considered when choosing a source of corporate finance?

Accepted Answer

Political stability

Answer

Company's credit rating

Answer

Cost of capital

Answer

Availability of financing

Question 5

Which source of financing is NOT considered primary?

Accepted Answer

Government grants

Answer

Equity financing

Answer

Debt financing

Answer

Sale of assets

Question 6

In an Initial Public Offering (IPO), which type of financing is involved?

Accepted Answer

Initial public offering (IPO)

Answer

Private placement

Answer

Rights issue

Answer

Venture capital

Question 7

What is the main purpose of a prospectus when a company goes public through an IPO?

Accepted Answer

Provide information to potential investors.

Answer

Obtain regulatory approval.

Answer

Determine the share offering price.

Answer

Market the offering to the public.

Question 8

What differentiates a convertible bond from a traditional bond?

Accepted Answer

Convertible bonds allow conversion into equity.

Answer

Traditional bonds have fixed interest rates, while convertible bonds have floating rates.

Answer

Convertible bonds mature faster than traditional bonds.

Answer

Convertible bonds are only issued by large corporations.

Question 9

What is the primary aim of a rights issue?

Accepted Answer

Raise capital from existing shareholders.

Answer

Increase the number of outstanding shares.

Answer

Enhance the company's credit rating.

Answer

Distribute cash dividends to shareholders.

Question 10

Which of the following is a potential disadvantage of debt financing?

Accepted Answer

Can lead to loss of control or influence

Answer

Interest payments can be tax-deductible

Answer

May require collateral or security

Answer

More flexible than equity financing

Question 11

What is the primary function of a venture capitalist in corporate finance?

Accepted Answer

Providing early-stage funding to startups

Answer

Guaranteeing loans to companies

Answer

Acting as an intermediary between companies and investors

Answer

Providing legal counsel to companies

Question 12

How does secured debt differ from unsecured debt?

Accepted Answer

Secured debt is backed by collateral or assets

Answer

Unsecured debt is backed by collateral or assets

Answer

Secured debt typically has a lower interest rate

Answer

Unsecured debt typically has a lower interest rate

Question 13

What is the primary purpose of a prospectus in corporate finance?

Accepted Answer

To provide potential investors with details about a company's securities

Answer

To promote a company's products or services

Answer

To raise capital for a company

Answer

To offer financial advice to investors

Question 14

Which of the following is NOT a regulatory body involved in overseeing corporate finance activities in the United Kingdom?

Accepted Answer

Securities and Exchange Commission (SEC)

Answer

Financial Conduct Authority (FCA)

Answer

London Stock Exchange (LSE)

Answer

Bank of England

Question 15

Which of the following is a key advantage of equity financing for a company?

Accepted Answer

It does not have to be repaid, providing the company with long-term capital.

Answer

It is typically easier to obtain than debt financing.

Answer

It does not dilute ownership of the company.

Answer

It is usually less expensive than debt financing.

Question 16

Which of the following is a distinguishing characteristic of debt financing?

Accepted Answer

It must be repaid with interest, creating a fixed financial obligation for the company.

Answer

It does not dilute ownership of the company.

Answer

It typically provides the company with tax benefits.

Answer

It is typically less expensive than equity financing.

Question 17

Which of the following is a common method of raising capital through debt financing?

Accepted Answer

Issuing bonds, which represent a loan from investors that must be repaid with interest.

Answer

Issuing preferred stock, which represents a hybrid security that has characteristics of both debt and equity.

Answer

Selling shares of stock, which represents the sale of ownership in the company.

Answer

Retaining earnings, which involves keeping a portion of the company's profits for reinvestment.

Question 18

Which of the following is an advantage of using blended financing?

Accepted Answer

It allows a company to customize its financing structure to meet its specific needs and risk tolerance, potentially reducing overall costs.

Answer

It is always less expensive than either equity or debt financing alone.

Answer

It is easier to obtain than either equity or debt financing alone.

Question 19

Which of the following is a form of private debt financing?

Accepted Answer

Bank loans, which are typically provided by commercial banks and have specific terms and conditions, including interest rates and repayment schedules.

Answer

Initial public offerings (IPOs), which involve selling shares of stock to the public for the first time.

Answer

Venture capital, which is typically provided by specialized investors to early-stage companies with high growth potential.

Question 20

Which of the following is a potential disadvantage of venture capital financing?

Accepted Answer

It typically involves giving up a significant amount of equity in the company, diluting the ownership and control of the founders.

Answer

It typically has very high interest rates.

Answer

It is only available to large, established companies.

Question 21

Which of the following is a source of internal financing for a company?

Accepted Answer

Retained earnings, which represent a portion of the company's profits that are kept for reinvestment rather than distributed as dividends to shareholders.

Answer

Obtaining a bank loan, which involves borrowing money from a bank and incurring debt.

Answer

Issuing bonds, which involves raising capital by borrowing money from investors and promising to repay it with interest.

Answer

Selling shares of stock, which involves raising capital by selling ownership in the company to external investors.

Question 22

A company issues new shares to the public to raise capital. This is an example of:

Accepted Answer

Equity financing

Answer

Venture capital

Answer

Debt financing

Answer

Asset-backed financing

Question 23

Which of the following is NOT a typical advantage of debt financing?

Accepted Answer

Increased ownership dilution

Answer

Fixed repayment terms

Answer

Tax deductibility of interest payments

Answer

Potential for lower cost of capital

Question 24

A company seeking funding for a high-risk, innovative technology venture would likely consider:

Accepted Answer

Venture capital

Answer

Trade credit

Answer

Bond issuance

Answer

Bank loan

Question 25

A company issues bonds with a fixed interest rate and a maturity date. This is an example of:

Accepted Answer

Debt financing

Answer

Crowdfunding

Answer

Equity financing

Answer

Asset-backed financing

Question 26

Which of the following is a key consideration when choosing a source of corporate finance?

Accepted Answer

The company's financial situation and risk profile

Answer

The weather forecast

Answer

The CEO's personal preference

Answer

The color of the company's logo

Question 27

A company issues shares to existing shareholders at a discounted price. This is known as a:

Accepted Answer

Rights issue

Answer

Debt factoring

Answer

Initial Public Offering (IPO)

Answer

Private placement

Question 28

A company sells its accounts receivable to a third party for immediate cash. This is an example of:

Accepted Answer

Debt factoring

Answer

Trade credit

Answer

Venture capital

Answer

Convertible debt

Question 29

What is the primary advantage of crowdfunding for a startup company?

Accepted Answer

Access to funding from a large number of investors

Answer

Low regulatory oversight

Answer

Guaranteed return on investment

Answer

Easy access to large amounts of capital

Question 30

Which of the following is a key difference between equity financing and debt financing?

Accepted Answer

Equity financing represents ownership, while debt financing represents borrowing

Answer

Equity financing is always more expensive than debt financing

Answer

Debt financing is only available to large corporations