CUET Entrepreneurship-Chapter-Management of Finance

(a)

Exp: Generally the investments are in equity instruments in case of venture capital and made in those enterprises which are new and using new technology of production to produce new products.

(c)

Exp: Investor’s return is taxed as capital gain rather than ordinary income or any other income under venture capital. It is a tax penalty imposed on productivity, investment, and capital accumulation.

(b)

Exp: Under lease financing, lessee can acquire asset with a lower investment and the risk of obsolescence is borne by lessor. Leasing would help in cases where the costs of the equipments are high and the depreciation is also very high.

(c)

Exp: A lease is a contractual agreement between two parties i.e. one who is the owner (lessor) of the asset and the other who takes the asset on rent (lessee) for a specific period. It does not transfers the title of asset to the lessee, who is only allowed to use it for a certain period.

(b)

Exp: India Investment Fund set up by ANZ Grindlays Bank is one of the specialised venture capital companies in India.

(a)

Exp: Venture capital investment is highly illiquid as it is not subject to repayment on demand. Venture capital means committing capital to an enterprise that has risk and adventure and thus refers to long term commitment.

(b)

Exp: Lease finance provides a good means of modernisation and diversification to the small and medium businessmen not having adequate funds to buy the assets required.

(c)

Exp: When an entrepreneur is going to start a new venture, he must have a fair idea about sources of cash generation, market trends, asset management concepts etc. As, these determine the success of an enterprise in the future.

(b)

Exp: A budget is basically a reflection of the intentions of the management about its objectives, management techniques, investments, modes of production and sale, strategies of marketing that would lead to realization of the proposed profits. It is formulated for a certain period of time.

(a)

Exp: Operational budget is a projected estimation of all trading activities of an enterprise, which includes sales, cost of sales, overheads in the management of the enterprise as well as profit. This budget helps the entrepreneur to scheme his operations according to a preset flowchart.

(a)

Exp: This budget presents the future capital expenditure, i.e. the investment made in machines, building, etc. Capital expenditure budget is related to the expenditure which is very high and has a long gestation period to yield any income.

(a)

Exp: Budgeting helps an enterprise in its decision making process. One of the main objectives of any enterprise is to realize certain amount of profit to meet the future needs of the entrepreneur and for the growth of the enterprise. For achieving these goals, appropriate decision making is crucial.

(c)

Exp: A sales budget is the basis for all other budgets and therefore, special care is needed while preparing it. It is a detailed plan of sales which gives the details about the estimated sales within a definite period of time. It is usually formulated for a period of six months or a year.

(a)

Exp: Production budget determines the quantity of different products to be produced and their time of production. The main purpose of preparing this budget is to strike a balance among sales, production and their time of production.

(b)

Exp: The cash flow is an important criterion for the routine management of the enterprise and to sustain its operations. This budgeting process will have to take in to account the operational as well as capital expenditure during the given time so that the cash flow can be properly assessed an utilized.

(a)

Exp: The secured loans are usually given on securities pledges or hypothecated to the bank. Loans can be raised against the assets, stocks and other market securities.

(b)

Exp: Cash is the most important asset for starting up a business. It is considered to be the life blood of the business. It provides support system to the enterprise.

(a)

Exp: The study of market dynamics enables an entrepreneur to forecast sales & consequently forecast cash flow from the revenue arising out of sales.

(d)

Exp: Sales give rise to regular revenue, which is received in the form of cash.

(b)

Exp: Buying stock in large quantities or maintaining a huge stock will unnecessarily block working capital and if stock is kept at its minimum level, then, there will be a constant fear of shortage of stock, so procurement has to be done in a planned manner.

(a)

Exp: Inventory of finished goods is the only asset which could provide supply of cash on constant basis. All the other assets mentioned could also be a part of cash supplying assets but they can’t provide a constant flow.

(b)

Exp: Consumables are directly used by the population, so if they are sold in close proximity of population, they will definitely provide high revenue and cash flow.

(d)

Exp: If equipment is required for a short period or for a specific period of operation, then, leasing is the best option to procure it. Other modes will unnecessarily impose financial burden on an entrepreneur and will also block his funds.

(b)

Exp: Equity funds refer to owner’s funds invested in an enterprise. These funds are also known as ownership securities or capital stock.

(c)

Exp: Apart from bearing risks, shares provide permanent capital to the enterprise. So, share holders are known as the owners of the company.

(b)

Exp: Operational budget forecasts about all kinds of trading/operational activities as sales, cost of sales, overheads and profit.

(d)

Exp: Capital expenditure budget reflects the amount of expenditure to be incurred on capital investments or fixed assets, such as land & buildings, equipments, machinery etc.

(d)

Exp: Budget is a type of plan, framed in numerical form that shows projected/estimated profit & loss that would arise as a result of trading activities.

(a)

Exp: Equity financing refers to the amount invested by the owners of an enterprise in the business. It is not refunded during the life span of the enterprise.

(d)

Exp: Trend of sales and market dynamics provide sound basis for sales budget. These two ingredients provide an insight to an entrepreneur to predict future trend of sales with accuracy.

(c)

Exp: Cash flow budget ensures smooth flow of cash. It ensures sufficient cash supply for operational & capital expenditure.

(b)

Exp: Seed capital refers to the funds necessary to start a business. This money is used to conduct preliminary operations, such as market research, product development etc.

(b)

Exp: Market sales report describes the likes and dislikes of the customers and the changing aspirations in the market. This helps in re-shaping the product & planning in advance for sales budget.

(a)

Exp: Commercial banks provide unsecured & secured loans to finance the requirements of small enterprises.

(c)

Exp: The central & the state governments have taken a large number of steps to motivate the entrepreneurs. Through these specialised institutions, government supports the small sector entrepreneurs.

(a)

Exp: The matters relating to real estate form the foundation of infrastructural issues. These decisions are taken, keeping in mind, the type of product being manufactured in an enterprise.

(b)

Exp: Accessing equipments is crucial for the entrepreneur. A few equipments can be purchased, subject to the availability of cash & rest of the equipments can be procured through lease or contract, depending upon their utility or periodicity of use.

(a)

Exp: Since the amount of loan is unsecured, no financial institution would like to risk a larger amount on this. Therefore, the amount of unsecured loans is always smaller than the secured loans.

(c)

Exp: Long term loans spread over a period of 3 yrs to 10yrs. These loans are provided for renovation, purchase of equipments etc.

(b)

Exp: Goodplanning & proper management provides a sound basis for existence & growth of an enterprise. Careless execution of planning & management may put a business house in danger.

(a)

Exp: By understanding the trend of orders an entrepreneur can prepare production plan. It helps him to mobilise raw materials and resources to meet the needs of the sales.

(b)

Exp: Capital invested in an enterprise by its owners is known as equity financing. It is not repaid to the investors in the normal course of business. It represents the risk capital staked by the owners for earning profits.

(d)

Exp: Apart from obtaining & managing money, financing also includes assets management, ensures effective use of the resources and high productivity and stability.

(a)

Exp: Sales result in the inflow of cash. On cash basis sales, a customer is required to pay instant cash to acquire the title on goods purchased.

(c)

Exp: Credit sales & credit purchases are not done in cash, so, cash flow will not be affected at all.

(b)

Exp: Customer base can only be raised through flexibility in sales policies. Inflexibility may ensure cash flows but higher & constant cash flows are only possible, if there is sufficient flexibility to accommodate different types of sales.

(b)

Exp: Short term loans are generally required for operating activities of an enterprise. Since these loans are required for operational & routine activities, their term does not go beyond one year.

(d)

Exp: It is provided by the investors. These investors do not interfere in management of the enterprise.

(d)

Exp: Theinvestors who provide venture capital to the enterprise do not meddle with the affairs of the management. They are more or less non-working partners. So they keep their attention only towards increasing credibility & profits of the enterprise.

(a)

Exp: Venture capital industry is a budding industry. Here stakeholders invest in an industry where they have special insight.

(b)

Exp: The capital, provided by an investor who does not participate in management but works for increasing credibility & profits is known as venture capital. Here the investor also bears the risk on money invested as the owner.

(a)

Exp: Entrepreneurs resort to public financing through the issue of shares or debentures. Public financing provides image & credibility to the company.

(b)

Exp: Public financing provides image & credibility to the company. Marketability of the shares provides value to the company.

(d)

Exp: The value at which the securities can be marketed depicts the performance of the company. If the company performs well, the rate of thesecurities will go high & vice versa.

(c)

Exp: Securities & Exchange Board of India provides guidelines & govern the companies which go public by issuing securities (shares & debentures).

(b)

Exp: Shareholders can have access on audited accounts & on reports of performance of the company, once it goes public by issuing securities.

(c)

Exp: Companies are bound to follow the guidelines provided by the Companies Act, incase they have issued securities for procuring public finance. Since the investments from general public are on stake, the Companies Act expects the companies to follow certain formalities, which are in the benefit of the stakeholders.

(b)

Exp: Through personal cash or conversion of assets into cash, an entrepreneur provides initial capital to the enterprise. Apart from cash, he also mobilises personal resources for enterprise development.

(c)

Exp: An entrepreneur also mobilises resources from family members, near and dear ones before opting for any other solution like public financing or debt financing.

(b)

Exp: Since this help is provided without undergoing legal formalities or creating business liabilities, it is known as informal assistance.

(c)

Exp: Apart from cash, when an entrepreneur provides his personal assets, it is known as mobilising personal resources, which come under personal financing.

(b)

Exp: Since this sort of assistance is known as informal assistance, the people who provide this may not have legal hold on enterprise. So, this kind of assistance gives enough space to an entrepreneur to execute his business ideas without interference.

(b)

Exp: Capital invested in an enterprise by its owners is non repayable during its life time. It is also known as equity financing or risk capital.

(a)

Exp: Leasing is advisable, where cost & depreciation both are high. Apart from this factor, cost of lease & maintainability of equipment should also be considered for deciding about the equipments to be leased.

(a)

Exp: In leasing, an entrepreneur enters into a contract to utilise equipment for a specified period of time, without the responsibility of ownership. This type of arrangement is done, when the need for that equipment is only temporary.