5.1. Business finance
A subsection of Business Studies, 9609, through 5. Finance and accounting (AS Level)
Listing 10 of 25 questions
Lovell’s Jewellery (LJ) Sara Lovell is a jewellery maker who designs, produces and sells her own range of jewellery. Sara is a sole trader and she set up LJ two years ago after she left university. The start up capital for LJ was mainly borrowed from Sara’s parents and she has managed to pay them back all the money that she borrowed. LJ is operated from a small shop, that Sara rents, near the main street of a busy town. Sara employs two sales assistants who work in the shop. She uses the store room at the back of the shop to design and produce the jewellery. The business made a profit for the first time in 2015 (see Table 1). Table 1 2014 ($) 2015 ($) Revenue 40 000 60 000 Cost of sales 25 000 30 000 Gross profit 15 000 30 000 Expenses 20 000 20 000 Profit for the year (5000) 10 000 LJ’s growth has resulted in economies of scale. Sara would like to expand the business further. She would like to open a new shop in the next town. Her research has narrowed down the choice to two locations (see Table 2). Table 2 Location A Location B • On a busy main street • High rent • Many other jewellery shops nearby • No parking nearby • Small shop window • Large amount of storage space • On a quiet street • Low rent • No other jewellery shops nearby • Near high income residents • Large shop window • Limited storage space Whichever property Sara chooses will require some extra finance. There will not be enough retained profit in the business to finance the opening of the new shop. Sara does not want to ask her parents for another loan, so she has decided to explore other sources of finance. Define the term ‘sole trader’ (line 2). Briefly explain the term ‘start up capital’ (lines 2–3). Refer to Table 1. Calculate the profit margin for 2015. Explain how LJ might have benefited from one economy of scale. Analyse two appropriate sources of finance that Sara could use to fund the opening of the new shop. Using Table 2 and any other relevant information, recommend which location Sara should choose for the new shop. Justify your answer.
9609_m16_qp_22
THEORY
2016
Paper 2, Variant 2
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Free Burgers (FB) FB is a private limited company that produces premium meat‑free burgers. FB has two shareholders, Bill and Sanjay. They each own 50% of the shares. FB’s burgers are produced in a factory using batch production. FB employs semi‑skilled workers in the factory and promotes its burgers as being ‘hand‑made’. FB has been operating in country Q for three years. The demand for premium meat‑free burgers in country Q has increased significantly in this period. An extract from FB’s financial data over this time period is shown in Table 2.1. Table 2.1: Financial data for FB Gross profit ($m) 0.6 Revenue ($m) 1.8 7.2 Gross profit margin 33.33% 41.67% X% The brand awareness and market share of FB has also been increasing. Bill thinks this is because of effective advertising, good customer retention and an effective price strategy. However, FB’s current factory is not modern enough to keep up with this increase in demand. Bill and Sanjay want to change from batch production to flow production to modernise the factory. However, this will require an external source of finance. Bill has suggested two possible sources of finance to fund this change. Source 1 – venture capital A venture capitalist has offered to buy 10% of FB for $1m. She wants to be part of the decision‑making at FB. She has experience of helping businesses to grow within country Q. Source 2 – a bank loan A bank has offered to loan FB $1m at a high interest rate. The bank manager is worried that the demand for meat‑free burgers may decline in the future and would require the loan to be paid back within one year. Define the term ‘private limited company’ (line 1). Explain the term ‘shareholders’ (line 2). Refer to Table 2.1. Calculate the gross profit margin for 2020. Explain one possible reason for the change in FB’s gross profit margin. Analyse one advantage and one disadvantage to FB of changing from batch production to flow production. Recommend which source of finance FB should choose to fund the change of production method. Justify your recommendation.
9609_m21_qp_22
THEORY
2021
Paper 2, Variant 2
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Bilal’s Homes (BH) Bilal is a sole trader, who buys and sells apartments for a profit. Bilal left university two years ago and moved back to his parent’s home in city W. He lacks social skills but he has always been good at self-management, so he wanted to start his own business. Bilal bought his first apartment using money that he borrowed from his parents. He spent some time and money improving and upgrading the apartment and was able to sell it for a profit. Bilal paid his parents back and then had enough capital to purchase his second apartment. Since then, Bilal has bought three more apartments. Table 1.1 shows some financial details about the last three apartments that Bilal bought and sold. Table 1.1: Financial details about the last three apartments that Bilal bought and sold Apartment Purchase price ($) Cost of improvements and upgrades ($) Selling price ($) A 58 000 8 000 80 000 B 120 000 10 000 150 000 C 65 000 15 000 70 000 Bilal has done some market research and has found out that customer demand for buying apartments in city W is increasing. He knows that he needs to purchase as many apartments as he can before the prices increase. However, he is limited by the capital he has in the business. Bilal has been approached by Sophie, another entrepreneur, who also buys and sells apartments. Sophie would like to enter into a business partnership with Bilal. She has provided Bilal with some details from the last year about her business. Bilal can use this data to help him decide if he would like to enter into the partnership (see Table 1.2). Table 1.2: Details about Sophie and her business in 2020 Number of apartments bought and sold Number of apartments that made a profit Number of apartments that made a loss Profit margin 11% Capital available at end of year $150 000 Sophie’s main competencies Social skills and social awareness Define the term ‘market research’ (line 15). Explain the term ‘social awareness’ (line 29). Refer to Table 1.1. Calculate the profit margin Bilal made on the last three apartments that he bought and sold. Explain one way in which Bilal may add value to the apartments he buys. Analyse two factors which could influence the demand for buying apartments in city W. Recommend whether Bilal should enter into a business partnership with Sophie. Justify your recommendation.
9609_s21_qp_23
THEORY
2021
Paper 2, Variant 3
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Questions Discovered
25