6. Business and its environment (A Level)
A section of Business Studies, 9609
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Energy Solutions (ES) ES is a public limited company in country X. The business was set up in 1980. For 25 years most of ES’s revenue came from coal mining. Although ES still owns many coal mines, the business now specialises in hydraulic fracturing, known as fracking. This is a process used to extract gas from underneath the ground. The government of country X encourages firms like ES to grow. The growth of ES has led to economies of scale and lower unit costs. ES considers the effects of fracking on all the stakeholders of the business. is an extract from a recent newspaper article about fracking. Fracking is not liked by everyone. On the positive side it could produce enough gas to mean that country X can produce its own energy for the next 100 years. This is also likely to mean lower energy prices for both businesses and consumers. Competing companies in the market have taken full advantage of fracking and are expecting to increase their revenue and profit substantially in the future. However, people who live near the fracking sites have reported many minor earthquakes. These have not damaged any buildings but the price of houses in those areas has decreased significantly. There has also been a concern that fracking could lead to pollution and a loss of wildlife. : Extract from a recent newspaper article about fracking Despite the complaints from some external stakeholders, ES plans to increase the number of fracking sites in country X. This will require ES to buy licences from the government of country X. Each licence costs $50m and ES will require both internal and external sources of finance to fund this purchase. ES employs over 1000 people. Every worker benefits from a profit-sharing scheme (see Table 1.1) as well as their basic pay. Table 1.1: Profit-sharing scheme at ES Profit in 2019 $12m Each director’s share of profit 0.25% Each manager’s share of profit 0.1% Each of other employees’ share of profit 0.002% Define the term ‘revenue’ (line 2). Explain the term ‘unit costs’ (line 6). Refer to Table 1.1. Calculate the difference in dollars received by each director and each manager from the profit-sharing scheme. Explain one disadvantage to ES of using a profit-sharing scheme. Analyse one internal source of finance and one external source of finance that ES could use to purchase a fracking licence. Evaluate how two external stakeholders of ES might be affected by the company continuing to use the fracking process.
9609_w20_qp_22
THEORY
2020
Paper 2, Variant 2
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