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 1 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 1

7115_s18_qp_12

THEORY

2018

Paper 1, Variant 2

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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 3 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 3

7115_s23_qp_12

THEORY

2023

Paper 1, Variant 2

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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 2 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 2

7115_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.

7115_w24_qp_12

THEORY

2024

Paper 1, Variant 2

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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 2 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 2

7115_s24_qp_11

THEORY

2024

Paper 1, Variant 1

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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 4 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 4

7115_s20_qp_11

THEORY

2020

Paper 1, Variant 1

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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.

7115_s10_qp_12

THEORY

2010

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Josh owns an office cleaning business. He has a number of large and small business customers. Josh employs 6 full-time cleaners who are all given off-the-job training. Josh believes that using the latest cleaning equipment increases added value. He said: ‘Customers are happy with the service. I am always sending text (SMS) messages to workers about additional work.’ Josh has been looking at his balance sheet. He cannot decide if a bank loan is the best source of finance to use for new equipment. The new equipment will cost $60000. Table 1: Extract from Josh’s balance sheet as at 30 April 2017 ($000) Current assets Trade receivables X Cash Y Current liabilities Net current assets What is meant by ‘trade receivables’? Calculate the following values. X: Y: Identify and explain one advantage and one disadvantage to Josh of using text (SMS) messages as a method of internal communication. Advantage: Explanation: Disadvantage: Explanation: 1 4 Identify one advantage and one disadvantage to Josh of using off-the-job training. Advantage: Explanation: Disadvantage: Explanation: Do you think a bank loan is the best source of finance for Josh to use for the new equipment? Justify your answer. [ 1 4

7115_s17_qp_11

THEORY

2017

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AllPlay is a toyshop, set up by Vince in 2012. Each year Vince has met his business objectives including making a profit in 2017. AllPlay imports all of its products. Vince wants to expand by opening a second shop so he can sell a wider range of products. The cost of buying the shop is $20000. One option for finance is a bank loan. Vince’s bank manager will want to see AllPlay’s Income statement, and other financial documents. Table 1: Extract from AllPlay’s Income Statement for the year ending 30 September 2018 $ 000s X Revenue Less cost of sales Gross profit Y Expenses (including rent and marketing) Profit What is meant by ‘business objectives’? Calculate X and Y. X: Y: Identify and explain one advantage and one disadvantage to AllPlay of importing its products. Advantage: Explanation: Disadvantage: Explanation: 1 1 Identify and explain two ways in which the bank might use AllPlay’s financial documents. Way 1: Explanation: Way 2: Explanation: Do you think a bank loan is the best source of finance for Vince to choose? Justify your answer. [ 1 1

7115_w18_qp_11

THEORY

2018

Paper 1, Variant 1

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