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Sources of Business Finance Test - 27

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Sources of Business Finance Test - 27
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  • Question 1
    1 / -0
    Commercial Paper emerged as a source of __________ finance in our country in the early _________.
    Solution
    Commercial paper emerged as a source of short-term finance in our country in the early nineties. Commercial paper is an unsecured promissory note issued by a firm to raise funds for a short period, varying from 90 days to 364 days.
  • Question 2
    1 / -0
    The money raised by issue of equity shares is called ________ share capital.
    Solution
    The money raised by issue of equity shares is called equity share capital.Equity share represent the ownership of a company  and thus thus the capital raised by equity shares are also known as ownership capital or ownership funds.
  • Question 3
    1 / -0
    Equity capital serves as ____________ capital as it is to be repaid only at the time of liquidation of a company.
    Solution
    Equity share capital is the prerequisite before the creation of a company. 
    It is a source of finances raised for the formation of the company and it also represents the ownership of the company.
    Equity capital serves as a permanent capital as it is to be repaid only at the time of liquidation.
  • Question 4
    1 / -0
    Investors who need steady income may not prefer equity shares as they get ___________ returns.
    Solution
    Investors who need steady or fixed dividend from the capital invested may not prefer equity shares as they fluctuating returns on the basis of the earnings of the company and receive all the leftovers after all the other claims are delt with.
  • Question 5
    1 / -0
    Preference shares resemble debentures as they bear ________ rate of return.
    Solution
    The capital raised by issue of preference shares is called preference share capital.Debentures are an important instrument for raising long term debt capital. Both resembles each other as they bear fixed rate of return on the capital that has been raised.
  • Question 6
    1 / -0
    As equity capital stands last in the list of claims, it provides a cushion for __________.
    Solution
    Equity capital are permanent source of capital and can be only returned at the time of liquidation of the company. Thus equity capital stands last in the list of claims, it provides a cushion for creditors claims that needs to be settled at the time of liquidation.
  • Question 7
    1 / -0
    The cost of equity shares is generally _______ as compared to the cost of raising funds through other sources.
    Solution
    Equity shares is the most important source of raising long term capital by a company. Equity shares represent the ownership of the a company and thus is known as owner's capital or owner's funds. 
    Hence the cost of equity shares is generally higher as compared to the cost of raising funds through other sources.
  • Question 8
    1 / -0
    Which of the following is a merit of equity shares?
    Solution
    Equity Share capital is also known as ownership capital or owner's funds. The merits of equity shares are, They provide credit worthiness to the company. Equity shares are suitable for investors who are willing to assume risks for higher returns, Equity capital serves as permanent capital.
  • Question 9
    1 / -0
    The rate of dividend on preference shares is generally _________ than the rate of interest on debentures.
    Solution
    The capital raised by issue of preference shares is called preference share capital.Debentures are an important instrument for raising long term debt capital. A company can raise funds through issue of debentures, which bear a fixed rate of interest. The rate of dividend on preference shares is generally higher than the rate of interest on debentures.
  • Question 10
    1 / -0
    Equity shares represent the __________ of a company.
    Solution
    Equity shares is the most important source of raising long term capital by a company. 
    Equity shares represent the ownership of the a company and thus is known as owner's capital or owner's funds. Equity share capital is the prerequisite before creation of a company.
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