Page 259 - Cambridge IGCSE Business Studies
P. 259
19: Business finance: needs and sources
Revision checklist Exam-style questions
● Businesses need funds 1 George is a sole trader who owns a bicycle shop in a large town. The
for a number of diff erent shop sells bicycles and cycling accessories. George wants to expand his
reasons and these reasons business by offering a repair service to customers. George will need to
will influence whether they rent a workshop and buy some equipment for the repair service. George
use short-term or long-term
estimates that he will need $2,000 to rent, fi t and equip the workshop
sources of finance.
and a further $1,000 to buy inventories: a total of $3,000. George is
● When choosing between
considering asking his bank for a loan.
different sources of finance
a business will choose George’s cousin, Winston, has offered to go into partnership with George.
internal sources before Winston would invest $2,000 in the business. Winston is a car mechanic.
external sources because
they are less costly. a What is meant by ‘bank loan’? [2]
● In some countries b Identify two disadvantages of external sources of fi nance. [2]
micro-financing has
c Identify and explain two pieces of fi nancial information the bank
become a popular way for
manager might want to know when considering George’s
entrepreneurs to borrow
small amounts of finance application for a bank loan. [4]
for business start-ups.
d Identify and explain two external sources of fi nance,
● When choosing which other than a bank loan, that George might consider for raising all or
source of finance is the most part of the $3,000 needed to fi nance the expansion of his business. [6]
appropriate to use businesses
will consider a number of e Do you think George should go into partnership with
factors such as cost, legal his cousin, Winston? Justify your answer. [6] 257
status, amount required and
level of existing borrowing. 2 Bright Spark Electrical (BSE) is a private limited company. It manufactures
large electrical appliances which are used in large commercial kitchens
such as those found in hotels, schools and hospitals. The business has
been very profi table over the past three years and this year is expecting
profi ts to be $100,000.
One of BSE’s most important machines for making appliances is nearly ten
years old. Over recent months it has had to be repaired several times. The
Board of Directors wants to replace the machine with a new one costing
$200,000. It is considering two fi nance options for this capital expenditure:
■ Leasing
■ Debenture
a Identify two features of a ‘private limited company’. [2]
b What is meant by ‘capital expenditure’? [2]
c Identify and explain two internal sources of fi nance available to
businesses such as BSE. [4]
d Identify and explain two factors that might infl uence
BSE’s choice of fi nance for the new machine. [6]
e The directors of BSE could choose to fi nance the purchase of new
machinery through leasing or debenture. Which do you think is the
best option for this business? Justify your answer. [6]
Total available marks 40
