Download Obtaining Finance Homework

Topic 1.3: Putting a business idea into practice
Chapter 18: Obtaining finance
1.
Which two of the following are examples of long-term finance for a high street chain of fashion
shops?
Select two answers.
2.
A
An overdraft
B
Trade credit
C
A three-year bank loan
D
New shares
E
A Christmas sale
On which one of the following would a business pay interest?
Select one answer.
3.
A
An overdraft
B
A share
C
Personal savings
D
Retained profit
Which one of the following is most likely to be an example of a type of finance where the lender
can demand immediate repayment from a business which has borrowed the money?
Select one answer.
A
An overdraft
B
A share
C
A bank loan
D
Retained profit
© Pearson Education Ltd 2009
Edexcel GCSE Business Studies
page 1
Topic 1.3: Putting a business idea into practice
Chapter 18: Obtaining finance
Perth Holdings Ltd is a Scottish-based company that makes drilling and other engineering
equipment for the oil industry. It was set up in 2001 with £160 000 of share capital, a £40 000 bank
loan and a £10 000 local authority grant. The shares were owned equally by Ella McDonald and
Shane MacTaggart. Ella, who studied Business at Glasgow University, insisted that the business should
be properly funded at the start. She knew that small businesses that lacked funding in the initial
stages often struggled. The company rents a factory unit on an industrial estate and leases about 80
per cent of its machinery and equipment.
The company has done well since starting up. The rising oil price has resulted in a boom in oil
exploration and Perth Holdings has benefited. Most of the company’s recent growth has been
funded through retained profit. This has avoided the need to increase the amount borrowed
through loans significantly.
In 2008, the price of oil reached a record high and the factory was running at full capacity. Ella and
Shane decided it was time to move to larger premises and cash in on the continuing boom. They
drew up a business plan for expansion. They calculated they would need to raise £200 000 to make
the move and update their technology. A bank agreed to loan them all the money.
1.
Analyse two differences between ‘share capital’ and a ‘bank loan’.
2.
Explain two reasons why a company like Perth Holdings would choose to lease machinery and
equipment rather than buying it outright.
(6)
3.
Perth Holdings Ltd could borrow the £200,000 from a bank or seek investment from a venture
capitalist to help it expand. In your opinion, which would be the better option for Perth Holdings
Ltd to fund its expansion?
(8)
© Pearson Education Ltd 2009
Edexcel GCSE Business Studies
(6)
page 2