In which of the following are both sources of funds appropriate for a business purchasing extra stock before a busy trading period?
A - HSC - SSCE Business Studies - Question 7 - 2018 - Paper 1
Question 7
In which of the following are both sources of funds appropriate for a business purchasing extra stock before a busy trading period?
A. Debentures and factoring
B.... show full transcript
Worked Solution & Example Answer:In which of the following are both sources of funds appropriate for a business purchasing extra stock before a busy trading period?
A - HSC - SSCE Business Studies - Question 7 - 2018 - Paper 1
Step 1
A. Debentures and factoring
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Answer
While debentures are a long-term source of finance, factoring involves selling receivables for immediate cash. This combination may not be the most suitable for purchasing stock before a busy period.
Step 2
B. Retained profits and unsecured notes
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Answer
Retained profits can be used for purchasing stock, but unsecured notes might not provide immediate access to cash, making this combination less ideal for the scenario.
Step 3
C. Debentures and bank overdraft
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Answer
Debentures provide long-term capital, while a bank overdraft offers a short-term solution to finance immediate stock purchases. This combination is appropriate for the situation.
Step 4
D. Retained profits and bank overdraft
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Answer
Retained profits are beneficial for funding ongoing operations, and a bank overdraft is an excellent source for quickly securing funds. This option is also appropriate for purchasing stock before a busy trading period.
