5. Finance and accounting (AS Level)
A section of Business Studies, 9609
Listing 10 of 99 questions
Pampered Pets (PP) PP is a chain of shops that sells pet food and accessories. Most of the shops are franchises. This has allowed PP to grow rapidly over the past three years. John is thinking of becoming a franchisee of PP. John has recently suffered redundancy from his long term job in a factory producing pet food. He does not have any experience in managing a business but his brother has been a shop manager and may be willing to work with John. A franchise with PP requires start up capital of $50 000. However, PP provides all the advertising, branding, signs and fittings for the shop. John will require appropriate sources of finance to be able to afford this start up cost as well as some working capital. Another option for John is to open an independent pet shop. This will require start up capital of $10 000. To help him make his decision, John has completed some research into both options. Table 1: John’s research PP franchise shop Independent shop Brand recognition High None Estimated advertising costs (in first year) $0 $10 000 Other costs (including cost of sales) $40 000 $25 000 Allocation of total profit 25% to be paid to PP 75% retained by John 100% retained by John Number of employees needed Estimated revenue (in first year) $60 000 $40 000 Profit received by John X $5 000 Define the term ‘redundancy’ (line 3). Briefly explain the term ‘working capital’ (line 9). Refer to Table 1. Calculate the value of X. Briefly explain why the revenue of an independent shop is likely to be less than a PP franchise shop. Analyse two possible sources of finance that John could use to finance the opening of a PP franchise. Recommend whether John should open a PP franchise or an independent shop. Justify your view.
9609_w16_qp_22
THEORY
2016
Paper 2, Variant 2
View
Questions Discovered
99