Question

James’ Jeans was established in 2014 by James, a fashion designer who decided to form the business after receiving multiple requests for jeans he had designed and tailored himself. After a few difficult years, the business is now growing rapidly.

1.Early 2014, James accepted personal loan of $20,000 from his sister to set up the James’ Jeans website. However, things didn’t go well when his sister got upset about a personal issue and then began demanding loan repayments at a much higher interest rate than they had agreed.James now wants additional injection of funds into the business to allow him to expand his manufacturing facility but he does not want to pay interest. Which one of the following options will avoid interest repayments?

a.crowdfunding. b.bank loan. c.loan from another family member

2.James wants an additional injection of funds into James’ Jeans to allow him to expand manufacturing facility. He asks his wealthy great-uncle to invest $100,000 in the business in return for 10% stake.What are the benefits of James seeking this type of equity funding? (select all that applies)

a.James won’t necessarily have to repay a loan. b.James won’t need a credit check. c.James will be able to tax deduct the funding. d.James loan repayment will be with very little interest.

3.James wants to look to increase profits. Select the best two levers James can pull to try and increase profits. (select all that applies)

a.Take on more full time staff b.Take out further equity to pay off debts c.Increase the price of his jeans. d.Increase his range of jeans to sell more product

4.James wants to get a better understanding of the business’ total assets and liabilities at the current point in time.Which financial statement is the best for James to review?

a.Cash flow statement. b.balance sheet c.tax record of assessment. d.profit and loss statement

Bobby is a skilled baker who worked for several years in a patisserie in Paris. On returning to Melbourne in 2016, she decided to open her own business, Bobby’s Bakery, to sell her unique pastries. Her ultimate goal is to franchise Bobby’s Bakery to fund her early retirement.

5.Bobby wants to look to increase profits. Select best two levers Bobby can pull to try and increase profits.

a.Cut costs that are not directly generating income. b.Generate another bank loan. c.Take out further equity to pay off debts. d.Don’t carry or make too much stock

6.Bobby wants to get a better understanding of cash that is coming in and out of his business.Which financial statement is the best for Bobby to review?

a.Cash flow statement. b.Tax record of assessment c.Profit and loss statement. d.balance sheet

7.Select the best answer from below to complete the blanks in the following sentence. If Bobby’s Bakery received a government grant of $100,000 to expand the business, this money would appear as “other income” in the _________ section of the business’s __________________.

a.liabilities; profit and loss statement b.expenses; profit and loss statement. c.cash incoming; cash flow statement. d.cash incoming; balance sheet

8.

To expand her business, Bobby is only interested in debt funding as she wants to retain full control of the business decisions. On that basis, which of the following options would be best for Bobby’s Bakery?

a.A government grant b.A bank loan c.An exchange of cash for equity. d.A personal loan from family

Answer 1

1). Crowdfunding will avoid interest payments because usually with crowdfunding there is no concept of debt. It is generally considered as equity.

2). If James gets his uncle to invest then a). he will not have to repay a loan as it will be an equity investment b). He avoids a credit check which is needed for raising funds from the market c). He will be able to tax deduct the funding.

3). In order to increase profits, James can c). increase the price of the jeans d). increase the range to sell more product.

4). For a current snapshot of the business' assets and liabilities, James should review the balance sheet of the business.