SOURCES OF LONG-TERM FINANCE
CHAPTER -6
Review Questions...
A. OBJECTIVE TYPE AND MULTIPLE CHOICE QUESTIONS (1 MARK QUESTIONS)
1. State whether each of the following statements id true or false:
(i) Ownership securities are represented by debentures.
(ii) Equity shares cannot be redeemed during the life time of a company.
(iii) Preference shares are entitled to fixed dividend irrespective of the level of earnings.
(iv) Equity shareholders have a residual claim on the assets of the company.
(v) Debentures do not cary any voting rights.
[Ans- (i) False; (ii) True; (iii) True; (iv) True; (v) True]
2. Fill the Blanks:
(i) There are two types of corporate securities (a) ownership securities, and (b) ________ securities.
(ii) Preference shareholders have preference in payment of (a) _________ and (b) _________ .
(iii) A fixed rate of _________ is payable on debentures.
(iv) The effective cost of debentures is ____________ as compared to shares.
[Ans- (i) Creditorship (ii) dividend, repayment of capital; (iii) interest; (iv) lower]
3. State whether the following are true or false:
(a) Ploughing back of profits is the same as self-financing.
(b) A new company can finance its assets by ploughing back of profits.
(c) Retained earnings provide a cushion to absorb the shocks of economy.
(d) Shareholders do not gain by the policy of ploughing back of profits.
(e) Ploughing back of profits results in dilution of ownership.
(f) Because of the merits of ploughing back of profits, a company should not pay any dividends.
(g) Earning capacity of the company has nothing to do with the policy of ploughing back of profits.
[Ans- (a) True; (b) False; (c) True; (d) False; (e) False; (f) false; (g) false.]
4. Select the most appropriate answer:
(i) Issue of equity shares is a:
(a) Short-term source of finance
(b) Long-term source of finance
(c) Medium-term source of finance
(d) None of the above.
(ii) Have a residual claim on the income of a company:
(a) Perference shareholders
(b) Debenture holders
(c) Equity shareholders
(d) All of these.
(iii) Trade credit provides:
(a) Short-term finance
(b) Long-term finance
(c) Dividend to equity shareholders
(d) None of the above
[Ans- (i) (b); (ii) (c); (iii) (a)]
B. SHORT ANSWER TYPE QUESTIONS (2 MARK QUESTIONS)
1. What are the sources of short-term finance?
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2. Name various medium and long-term sources of finance.
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3. What are the two forms of corporate securities?
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4. What are the characteristics of equity shares.
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5. Give advantages of preference shares as a source of finance.
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6. Distinguish between a share and a debenture.
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7. Name the various types of preference shares.
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8. Write a note on convertible debentures.
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9. What do you understand by retained earnings?
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10. What is the need of ploughing back of profits ?
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11. Write a brief note on depreciation as source of finance.
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12. What do you mean by self-financing?
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13. What is term financing?
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14. Discuss the need of specialised financial institutions.
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C. LONG ANSWER TYPE QUESTIONS
1. What are the various source available to India businessmen for raising long -term funds?
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2. Discuss the source of long-term finance for a project.
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3. What are the short term, medium term and long-term sources of finance? Explain equity share as a source of long-term finance.
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4. Critically examine the advantages and disadvantages of raising funds by issuing shares of different types.
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5. What are debentures? What type of debentures can a joint stock company issue? Evaluate debentures as a source of funds.
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6. Between equity shares and debenture which is profitable for raising additional long-term capital for a manufacturing company and why?
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7. Critically evaluate the utility of preferred stock as a means of obtaining long-term funds.
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8. ''Debentures occupy a very important place in the financial plan''. Discuss the statement and point out the limitations of debentures financing.
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9. Give a comparative evaluation of the various methods that are open to meet the financial requirement of a business.
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10. What do you understand by retained earnings ? Discuss the merits and limitations of ploughing back of profits as a source of finance.
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11. Write short notes on:
(a) Venture capital
(b) Seed capital
(c) Bridge finance
(e) Warrants
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Questions Type By- Janmoni Hazarika
Post ID: DABP002238
