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

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THEORY

2024

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Table 1 shows a summary of the Balance Sheet for C & C. Table 1: C & C Balance Sheet ($m) Fixed Assets Current Assets Current Liabilities Net Assets Long-term liabilities Shareholders’ Funds Capital Employed What is meant by ‘current assets’? Calculate the current ratio for C & C in 2011. Identify and explain two situations when a business might use an overdraft to finance its activities. Situation 1: Explanation: Situation 2: Explanation: Identify and explain three changes that occurred in the financial position of C & C between 2010 and 2011. Change 1: Explanation: Change 2: Explanation: Change 3: Explanation: How useful are the accounts of a business to any two stakeholder groups? Justify your answer. Stakeholder group 1: Stakeholder group 2:

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THEORY

2012

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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

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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

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THEORY

2021

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AB is a large business providing services in country Z. Fig. 1 shows the market distribution of its sales in 2009. Table 2 shows a summary of its financial data in the same year. Fig. 1: Market Distribution of Sales (2009) Table 2: Financial Data (2009) Sales turnover $750m Net Profit $150m Net profit margin 20% Return on capital employed 15% domestic sales export sales What is meant by a return on capital employed ? Calculate the value of domestic sales in 2009. AB has borrowed a lot of money from banks in order to expand. Identify and explain two disadvantages to a company of owing a lot of money to banks. Disadvantage 1: Explanation: Disadvantage 2: Explanation: Country Z is in recession. Identify and explain three ways in which a recession might affect AB. Way 1: Explanation: Way 2: Explanation: Way 3: Explanation: The Government of country Z is to take control of AB. Do you think that this will be in the best interests of the stakeholders in AB? Justify your answer.

0450_s10_qp_11

THEORY

2010

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Company WLP is a large company providing services in country Z. Fig. 1 shows the market distribution of its sales in 2009. Table 2 shows selected financial data for the company in the same year. Distribution of sales for company WLP Selected financial data for company WLP domestic sales export sales Key: Sales turnover $750m Net profit $150m Net profit margin 20% Return on capital employed 15% Fig. 1 Table 2 What is meant by the ‘net profit margin’? Calculate the value of export sales in 2009. Identify and explain two advantages to company WLP of raising extra capital from its shareholders instead of increasing its borrowing. Advantage 1: Advantage 2: The economy of country Z is experiencing a high rate of inflation. Identify and explain three ways in which high inflation might affect WLP. Way 1: Way 2: Way 3: WLP is now in financial difficulties. If WLP stops trading this will affect the interests of its stakeholders. Should the Government in country Z provide financial support in these circumstances? Justify your answer.

0450_s10_qp_12

THEORY

2010

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Company WLP is a large company providing services in country Z. Fig. 1 shows the market distribution of its sales in 2009. Table 2 shows selected financial data for the company in the same year. Distribution of sales for company WLP Selected financial data for company WLP domestic sales export sales Key: Sales turnover $750m Net profit $150m Net profit margin 20% Return on capital employed 15% Fig. 1 Table 2 What is meant by the ‘net profit margin’? Calculate the value of export sales in 2009. Identify and explain two advantages to company WLP of raising extra capital from its shareholders instead of increasing its borrowing. Advantage 1: Advantage 2: The economy of country Z is experiencing a high rate of inflation. Identify and explain three ways in which high inflation might affect WLP. Way 1: Way 2: Way 3: WLP is now in financial difficulties. If WLP stops trading this will affect the interests of its stakeholders. Should the Government in country Z provide financial support in these circumstances? Justify your answer.

0450_s10_qp_13

THEORY

2010

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PCB is a public limited company. It makes a well-known brand of mobile phones. Pricing is important as it sells in a competitive market. PCB wants to increase its product range. It plans to make luxury headphones as the demand for these is growing fast. The Operations Director has to decide whether PCB should develop its own brand of headphones or take over an existing producer. For both options, the source of finance would be a share issue. Table 1: Information on the 2 options Option 2: Buy existing producer of headphones Option 1: Develop own headphones $45m $12m – $15m Cost 3 months 12 – 18 months Time needed before product launch Existing producer has different leadership style and organisational structure Need to recruit 1 experienced designer Other information What is meant by ‘brand’? Identify two methods of pricing PCB could use for its mobile phones. Method 1: Method 2: Identify and explain two advantages to PCB of increasing the range of products it sells. Advantage 1: Explanation: Advantage 2: Explanation: 1 17 Identify and explain one advantage and one disadvantage to PCB of issuing new shares as a source of finance. Advantage: Explanation: Disadvantage: Explanation: Recommend which option for increasing the product range the directors should choose. Justify your answer using the information in Table 1. [ 1 17

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THEORY

2017

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IBH is a family-owned private limited company. It makes a range of shoes for children, using batch production. It is a competitive market. Like many businesses, IBH needs finance for a number of reasons. The Finance Director has been looking at some financial data. An extract is shown in Table 1. Some of the directors would like to expand into the women’s shoe market and want to know whether IBH’s performance is improving. Table 1: Extract from financial data for IBH ($000) Revenue Gross profit Profit Non-current liabilities What is meant by ‘non-current liabilities’? Identify two reasons why a business might need finance. Reason 1: Reason 2: 1 17 Identify and explain two possible advantages to IBH of being a private limited company. Advantage 1: Explanation: Advantage 2: Explanation: Identify and explain two advantages to IBH of using batch production. Advantage 1: Explanation: Advantage 2: Explanation: [ 1 17 Do you think IBH’s performance has improved in 2017? Justify your answer using profit margins. 1 17

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THEORY

2018

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Hashim is an entrepreneur. He plans to start up as a sole trader by opening a small gift shop next to a popular tourist site. His market research shows that October to June are the months when sales are likely to be highest. His first business failed within 6 months of start up because of poor financial planning. This time, Hashim has produced a cash-flow forecast, shown in Table 1, as part of his business plan. His parents have agreed to give him an interest free loan for the shop rent. He is hoping to arrange trade credit from suppliers. Table 1: Cash-flow forecast for Hashim’s business for the period July – October 2019 ($) October September August July Cash inflow Cash outflow Y (40) (220) Net cash flow (260) (260) (220) Opening balance (200) (260) (260) X Closing balance Identify two features of a sole trader business. Feature 1: Feature 2: Calculate values for: X: Y: Identify and explain two factors that Hashim’s suppliers might consider before deciding to offer him trade credit. Factor 1: Explanation: Factor 2: Explanation: [ 1 9 Identify and explain two ways in which a business plan might help Hashim’s new business to be successful. Way 1: Explanation: Way 2: Explanation: Do you think Hashim should start the new business? Justify your answer using the information in Table 1. 1 9

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THEORY

2019

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