41 Lecture - Short term financing, long term financing and lease financing

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41 Lecture

MGT201

Midterm & Final Term Short Notes

Short term financing, long term financing and lease financing

Short term financing refers to borrowing money for a period of up to one year, often used for working capital needs. Long term financing, on the other hand, refers to borrowing for more than one year, often used for capital investments. Lease fi


Important Mcq's
Midterm & Finalterm Prepration
Past papers included

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  1. Which of the following financing options is typically used for working capital needs? a) Long term financing b) Lease financing c) Short term financing d) Equity financing Solution: c) Short term financing

  2. Which of the following is a disadvantage of short term financing? a) It is easy to obtain b) It can be expensive c) It can be used for long term investments d) It does not require collateral Solution: b) It can be expensive

  3. Which of the following financing options is typically used for capital investments? a) Long term financing b) Lease financing c) Short term financing d) Equity financing Solution: a) Long term financing

  4. Which of the following is a disadvantage of long term financing? a) It is difficult to obtain b) It can be expensive c) It is typically used for short term needs d) It does not require collateral Solution: b) It can be expensive

  5. Which of the following financing options involves regular payments in exchange for the use of an asset? a) Long term financing b) Lease financing c) Short term financing d) Equity financing Solution: b) Lease financing

  6. Which of the following is an advantage of lease financing? a) The lessee owns the asset b) It is typically more expensive than other financing options c) It allows for flexibility in equipment upgrades d) It requires a large upfront investment Solution: c) It allows for flexibility in equipment upgrades

  7. Which of the following financing options typically requires collateral? a) Long term financing b) Lease financing c) Short term financing d) Equity financing Solution: a) Long term financing

  8. Which of the following is a disadvantage of equity financing? a) It is expensive b) It requires regular payments c) It can dilute ownership d) It requires collateral Solution: c) It can dilute ownership

  9. Which of the following financing options is typically used for real estate purchases? a) Long term financing b) Lease financing c) Short term financing d) Equity financing Solution: a) Long term financing

  10. Which of the following financing options is typically used for equipment purchases? a) Long term financing b) Lease financing c) Short term financing d) Equity financing Solution: b) Lease financing



Subjective Short Notes
Midterm & Finalterm Prepration
Past papers included

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  1. What is short term financing and what are some common examples of short term financing? Answer: Short term financing refers to borrowing money for a period of up to one year. Common examples of short term financing include bank loans, lines of credit, and trade credit.

  2. What is long term financing and what are some common examples of long term financing? Answer: Long term financing refers to borrowing money for a period of more than one year. Common examples of long term financing include mortgages, bonds, and term loans.

  3. What is lease financing and what are some common types of leased assets? Answer: Lease financing involves the use of a leased asset in exchange for regular payments, without actually owning the asset. Common types of leased assets include equipment, vehicles, and real estate.

  4. What are the advantages of short term financing? Answer: The advantages of short term financing include flexibility, ease of obtaining, and the ability to meet short term cash flow needs.

  5. What are the disadvantages of short term financing? Answer: The disadvantages of short term financing include higher interest rates, the need for frequent renewals, and the potential for cash flow problems if the financing is not used appropriately.

  6. What are the advantages of long term financing? Answer: The advantages of long term financing include lower interest rates, the ability to make large investments, and the ability to plan for the long term.

  7. What are the disadvantages of long term financing? Answer: The disadvantages of long term financing include the potential for higher overall costs due to interest, the need for collateral, and the potential for restrictions on how the funds can be used.

  8. What are the advantages of lease financing? Answer: The advantages of lease financing include the ability to use an asset without actually owning it, the ability to upgrade equipment regularly, and the potential for tax benefits.

  9. What are the disadvantages of lease financing? Answer: The disadvantages of lease financing include the potential for higher costs over time, restrictions on the use of the asset, and the potential for long term commitments.

  10. How can a business determine which type of financing to use? Answer: A business can determine which type of financing to use by considering factors such as the purpose of the financing, the length of time the funds will be needed, and the business's overall financial situation.

Short term financing, long term financing, and lease financing are all common methods for businesses to obtain the capital they need to grow and thrive. Short term financing, as the name suggests, involves borrowing money for a period of up to one year. This type of financing is often used to meet short-term cash flow needs, such as covering payroll or paying for inventory. Examples of short term financing include bank loans, lines of credit, and trade credit. Long term financing, on the other hand, involves borrowing money for a period of more than one year. This type of financing is typically used for larger investments, such as purchasing real estate or making significant upgrades to equipment. Examples of long term financing include mortgages, bonds, and term loans. Lease financing is a different type of financing altogether. It involves the use of a leased asset in exchange for regular payments, without actually owning the asset. This can be a cost-effective way for businesses to acquire assets such as equipment, vehicles, or real estate. Lease financing can offer a number of advantages, such as flexibility in equipment upgrades and potential tax benefits. When deciding which type of financing to use, businesses should consider factors such as the purpose of the financing, the length of time the funds will be needed, and the overall financial situation of the business. Short term financing may be appropriate for addressing short-term cash flow needs, while long term financing may be more appropriate for larger investments. Lease financing can offer a middle ground, allowing businesses to acquire assets without committing to long-term ownership. It's important to note that each type of financing has its own advantages and disadvantages, and businesses should carefully consider the terms and conditions of each option before making a decision. For example, short term financing may have higher interest rates and require more frequent renewals, while long term financing may require collateral and restrict how the funds can be used. Lease financing may have restrictions on the use of the asset and potential long-term commitments. In conclusion, short term financing, long term financing, and lease financing are all important options for businesses seeking to obtain the capital they need to grow and succeed. Careful consideration of the advantages and disadvantages of each option is key to making an informed decision that meets the specific needs and goals of the business.

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