Gowri has always wanted to start up her own business making leather goods such as bags and belts. She has already asked about micro-finance and what help the Government will offer new business start-ups. ‘There is still a lot to do!’ said Gowri. ‘I need to plan my sales promotion and find out about how legal controls could affect my business.’ Gowri is not sure if she needs a business partner. What is meant by ‘micro-finance’? Identify two reasons why the Government might support business start-ups. Reason 1: Reason 2: Identify and explain two ways in which legal controls might affect Gowri’s business. Way 1: Explanation: Way 2: Explanation: Identify and explain two factors (other than legal controls) that Gowri needs to consider when deciding on which method of promotion to use for her products. Factor 1: Explanation: Factor 2: Explanation: Do you think it would be better for Gowri to have a business partner rather than be a sole trader? Justify your answer.

0450_m15_qp_12

THEORY

2015

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Adele started a dance school five years ago. Every year Adele pays herself a salary and makes $1000 profit. The school offers a range of dance and exercise classes for children. It is a sole trader business. Adele believes using the right pricing method is important. Adele wants to expand the business by opening a second dance school. Based on her business plan, she forecasts that this will cost $8000. Adele cannot decide whether a bank loan is the best source of finance for this expansion. Identify two features of a sole trader. Feature 1: Feature 2: Identify two of the main sections of a business plan. Section 1: Section 2: Identify and explain two reasons why using the right pricing method is important for Adele’s business. Reason 1: Explanation: Reason 2: Explanation: 1 16 Identify and explain two location factors that Adele should consider when deciding on a second school. Factor 1: Explanation: Factor 2: Explanation: Do you think that a bank loan is the best source of finance for Adele to use to expand the business? Justify your answer. [ 1 16

0450_s18_qp_12

THEORY

2018

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CPF is a clothing retailer. It is a private limited company. It has 4 shops and 30 employees. The Finance Director is concerned about the amount of current assets because working capital is important. The amount of retained profit is also low. CPF’s directors are planning to expand the business by opening a new shop. A suitable source of long-term finance will need to be identified. The plan to expand will affect many of CPF’s stakeholder groups. Define ‘retained profit’. Define ‘current assets’. Outline two possible reasons why working capital is important for CPF. Reason 1: Reason 2: [ 1 15 Explain one way each of the following stakeholder groups might be affected by CPF’s plans to expand its business. Employees: Explanation: Suppliers: Explanation: Do you think it is better for a private limited company to use debt (e.g. a loan) or equity (issuing more shares) as a source of long-term finance? Justify your answer. 1 15

0450_s23_qp_12

THEORY

2023

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Gisela and Winny have a business partnership selling children’s clothes. The business competes against many large clothing shops. It is difficult for the partnership to hold more stock because the business does not have enough working capital. Gisela and Winny are thinking of converting the business into a private limited company. They agree that the business objectives should be growth and profitability. What is meant by a ‘business partnership’? Identify two advantages to a business of holding a low level of stock. Advantage 1: Advantage 2: Identify and explain two reasons why working capital is important to a business. Reason 1: Explanation: Reason 2: Explanation: Identify and explain three reasons why Gisela and Winny’s business may find it difficult to compete against larger clothing shops. Reason 1: Explanation: Reason 2: Explanation: Reason 3: Explanation: Do you think that the business is more likely to achieve its objectives if it converts to a private limited company? Justify your answer.

0450_w10_qp_13

THEORY

2010

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Paolo wants to start up a business making cakes. He plans to sell all of his products to a wholesaler. Paolo knows the packaging for his products will be important. He has prepared some financial and sales data. An extract from this data is shown in Table 1.1. Paolo is considering using crowdfunding as a source of finance. He knows the business will also need working capital. Table 1.1 Extract from Paolo’s financial and sales data $6 Average price per cake $4 Average cost per cake Forecast average number of cake sales per day Define ‘working capital’. Calculate the average revenue per day. Show your working. Working: Final answer: Outline two reasons why packaging will be important for Paolo’s business. Reason 1: Reason 2: 1 11 Explain one advantage and one disadvantage to Paolo’s business of using crowdfunding as a source of finance. Advantage: Explanation: Disadvantage: Explanation: Do you think selling to a wholesaler is the best channel of distribution for a start-up business to use? Justify your answer. [ 1 11

0450_w23_qp_12

THEORY

2023

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Avtar owns a car repair business which operates in the private sector. It is a small business with 2 full-time employees. Avtar wants to find out the best way for a business to increase added value. Avtar’s business needs finance for many reasons. Avtar wants to know how an economic recession might affect his business. Identify two features of a private sector business. Feature 1: Feature 2: Identify two reasons why a business might remain small. Reason 1: Reason 2: Outline one reason why Avtar might need each of the following types of finance: Short-term finance: Long-term finance: Explain two ways an economic recession might affect Avtar’s business. Way 1: Explanation: Way 2: Explanation: Explain two ways a business can increase added value. Which is likely to be the best way for a business to use? Justify your answer.

0450_w24_qp_12

THEORY

2024

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CLG owns six airports in country L. The directors want to expand its main airport by building another runway for aircraft to take off and land. It will cost $300m. Choosing an appropriate source of finance will be important. The Managing Director said: ‘CLG could offer 50 extra flights a day. There are environmental pressures including the loss of green spaces and extra pollution. There will be external benefits as well. I hope the Government allows the new runway to be built.’ Interest rates increased in 2017. Table 2: Extract from financial data 2017 ($m) Non-current assets Non-current liabilities Shareholders’ equity What is meant by ‘shareholder’? Identify two reasons why a business might need short-term finance. Reason 1: Reason 2: Identify and explain two ways increased interest rates could affect CLG. Way 1: Explanation: Way 2: Explanation: 1 13 Identify and explain two factors (other than interest rates) that CLG should consider when choosing a source of finance to pay for the expansion. Factor 1: Explanation: Factor 2: Explanation: Considering the external costs and external benefits, do you think the Government should allow CLG to build the new runway? Justify your answer. 1 13

0450_s18_qp_13

THEORY

2018

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IDT manufactures clothes for the mass market. It is a multinational company with factories in 4 countries. IDT has short-term and long-term financial needs. The Finance Director is analysing IDT’s statement of financial position. An extract is shown in Table 3.1. He has been asked to calculate working capital and to explain how an increase in non-current liabilities might affect IDT. Table 3.1 Extract from IDT’s statement of financial position ($ million) Current assets Current liabilities Non-current liabilities Define ‘mass market’. Calculate IDT’s working capital in 2023. Working: Final answer: Outline one reason why IDT might need the following types of finance: Short-term finance: Long-term finance: 1 9 Explain two ways an increase in non-current liabilities might affect IDT. Way 1: Explanation: Way 2: Explanation: Explain two advantages to a business of being a multinational company. Which advantage do you think is likely to be the most important? Justify your answer. [ 1 9

0450_s24_qp_11

THEORY

2024

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Kara’s business makes wax candles. She sells them to retailers at low prices. She gives retailers 60 days to pay. Kara has to pay her suppliers when raw materials are delivered. Kara used crowd-funding to set up her business. The bank would not give Kara a loan as she did not have a business plan. Last year revenue was $50000. Demand is increasing but Kara is not yet able to benefit from economies of scale. She said: ‘Cash-flow is a problem. All cash inflows are used to buy inventory.’ Define ‘crowd-funding’. State two economies of scale. Economy of scale 1 Economy of scale 2 Outline two reasons why a bank might want Kara to produce a business plan before agreeing to give a loan. Reason 1: Reason 2: 1 14 Explain two factors Kara should consider when deciding whether to increase prices. Factor 1: Explanation: Factor 2: Explanation: Do you think delaying payments to suppliers is the best way for a small business to improve its cash-flow? Justify your answer. [ 1 14

0450_s20_qp_11

THEORY

2020

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RJJ manufactures women’s shoes. It sells the shoes to a niche market using e-commerce. RJJ is a public limited company and its shareholders benefit from limited liability. The Managing Director is planning to expand the business. RJJ could take over a competitor. Last year profit decreased by $50 000. The Finance Director has to decide on a source of finance to fund the expansion. Define ‘limited liability’. Define ‘niche market’. Outline two opportunities for consumers of using e-commerce when purchasing RJJ’s products. Opportunity 1: Opportunity 2: 1 17 Explain two factors RJJ’s Finance Director should consider when deciding on a source of finance for the expansion. Factor 1: Explanation: Factor 2: Explanation: Do you think a takeover of a competitor is the best way for a large business to grow? Justify your answer. [ 1 17

0450_m21_qp_12

THEORY

2021

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