İŞLETME FİNANSI II - Deneme Sınavı - 1

For funding investments and/or other cash uses by medium and long-term sources, the companies have four different alternatives. These are generally in the forms of bank borrowing, borrowing from special institutions, debt issuance and equity finance, securitization. Furthermore, depending on the peculiarities of the funding needs leasing can be another source of medium and long-term financing. Additionally, the internal sources such as Retained Earning and Depreciation provide financing to the corporate. Therefore, the correct option is B.

Some of the important factors affecting the decision amongst those alternatives are: • Peculiarities of the fund use (whether machinery or equipment purchase financing or construction, etc.)Some of the important factors affecting the decision amongst those alternatives are:

• Peculiarities of the fund use (whether machinery or equipment purchase financing or construction, etc.) 

• Bank lending capacity and relation with banks,

• Availability of security,

• Existing capital structure of the company,

• Capital market depth,

• Financial climate (Boom or boost financial market conditions),

• Legal and tax issues,

• The approach of top management with regards to equity sharing. 

Therefore, the correct option is C.

In order to fund those uses, there exist two types of cash sources. Internal cash flow is generated from retained earnings and depreciation. External cash flow is generated from short-term borrowings and long-term debt and equity finance. As a general principle, short-term uses are proposed to be financed by short-term sources and vice versa. Long-term uses of cash are basically for funding the future of the company by new investments. Therefore, the correct option is E.

The funding provided by the banks are classified into short-term loans (payback period up to 1 year), medium-term loans (payback period 1 to 5 years) and long-term loans (payback period over 5 years, up to about 30 years such as for mortgage credits. Therefore, the correct option is A.

Loans are granted by financial institutions after a client presents an application form. Before deciding about providing the loan, financial institutions consider all details of the client’s financial position, the feasibility of their business plans, and they require securing the loan with real estate (pledge), backing it by a third person (surety for a person), by a bank guarantee etc. Therefore, the correct option is A.

The main medium and long term funding provided by banks are in the form of Project Finance. Project finance is the process of financing a specific economic unit that the sponsors create, in which creditors share much of the venture’s business risk and funding is obtained strictly for the project itself. Therefore, the correct option is B.

Project finance transactions are complex undertakings, they have higher costs of borrowing when compared to conventional financing and the negotiation of the financing and operating agreements is time-consuming. The costs applicable loans can be in the forms of:

• interest

• arrangement fees

• covenant compliance costs

• professional advice.

Therefore, the correct option is C.

Syndication loans are credits granted by a group of banks to a borrower. In a syndication loan, two or more banks agree jointly to make a loan to a borrower. Every syndicate member has a separate claim on the debtor, although there is a single loan agreement contract. Therefore, the correct option is B.

The main differences between debt and equity are the following:

• Debt is not an ownership interest in the firm. Creditors do not generally have voting power.

• The corporation’s payment of interest on debt is considered a cost of doing business and is fully tax deductible. Dividends paid to stockholders are not tax deductible.

• Unpaid debt is a liability of the firm. If it is not paid, the creditors can legally claim the assets of the firm. This action can result in liquidation or reorganization, two of the possible consequences of bankruptcy. Thus, one of the costs of issuing debt is the possibility of financial failure. This possibility does not arise when equity is issued. 

Therefore, the correct option is A.