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CA Intermediate · Financial Management and Strategic Management · Types of Financing

A start-up with an innovative technology but no operating history seeks high-risk equity-type funding from specialists who also provide management guidance and expect to exit through a public offer or sale after several years. Which source of finance does this describe?

This describes venture capital financing. Venture capitalists invest equity in young, high-risk, high-growth firms, offer management guidance, and plan to exit after several years through a public offer or sale. Other options such as trade credit or commercial paper do not involve this risk-taking role.

  1. AVenture capital financingCorrect
  2. BTrade credit
  3. CCommercial paper
  4. DDebentures with a fixed charge

Explanation

Venture capital funds invest in high-risk, high-potential new businesses, usually through equity, often provide managerial support and exit via IPO or sale. Commercial paper is for creditworthy firms' short-term needs; trade credit and secured debentures do not involve such active equity participation.

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