5.2. Cash-flow forecasting and working capital
A subsection of Business Studies, 7115, through 5. Financial information and decisions
Listing 10 of 13 questions
NMBJ makes a range of cookies using batch production. Last year profit increased by $1.5million. The directors think this is because of an increase in productivity and better management of working capital. NMBJ has a low level of inventory. NMBJ plans to increase the wages of all 300 employees by $50 per month from March. The Finance Director is worried: ‘This decision will add $15000 to wages each month. Many employees are leaving. Is paying higher wages the best way to improve motivation?’ Table 2: Cash flow forecast for the period January - March 2018 ($000) March February January Cash inflow Cash outflows: X Wages Other costs Total cash outflows Y (20) Net cash flow (15) W Opening balance Z (15) Closing balance What is meant by ‘productivity’? Identify two reasons why a business might need working capital. Reason 1: Reason 2: Calculate the following values shown on the cash flow forecast. W: X: Y: Z: 1 2 Identify and explain one advantage and one disadvantage to NMBJ of having a low level of inventory. Advantage: Explanation: Disadvantage: Explanation: Do you think paying higher wages is the best way for NMBJ to improve employee motivation? Justify your answer. [ 1 2
7115_w17_qp_11
THEORY
2017
Paper 1, Variant 1
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Bakin Group (BG) is a limited company. It has 3 holiday parks that offer families holiday accommodation and activities. BG aims to look after its customers’ needs 24 hours a day. Customers pay for the holidays when they arrive at the park. Each park has 3 managers and 40 part-time employees. BG uses a wide range of social media networks for promotion. The Finance Director is worried about BG’s cash flow position. He cannot decide if an overdraft is the best way for BG to solve its cash flow problem. Table 1: Cash flow forecast for period January - March 2019 ($000) March February January Cash in Cash out: Interest Wages and other costs Total cash outflow (30) (20) X Net cash flow (50) (30) (40) Opening balance Y (50) (30) Closing balance What is meant by ‘limited company’? Calculate the values of X and Y. X: Y: [ 1 1 Identify and explain two advantages to BG of having part-time employees. Advantage 1: Explanation: Advantage 2: Explanation: Identify and explain one advantage and one disadvantage to BG of using social media networks for promotion. Advantage: Explanation: Disadvantage: Explanation: 1 1 Do you think an overdraft is the best way for BG to solve its cash flow problem? Justify your answer. 1 1
7115_w18_qp_12
THEORY
2018
Paper 1, Variant 2
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Veronique is bored with her work in a large factory. As a creative person, she would like to leave and start up a flower shop. Veronique has asked about micro-finance and prepared a cash flow forecast. An extract is shown in Table 3.1. Veronique has also carried out some market research and found out that the demand for flowers is likely to be high during festivals. She thinks she has the right characteristics to be a successful entrepreneur. Table 3.1 Extract from the cash flow forecast for Veronique’s flower shop for the first 3 months ($) Month 3 Month 2 Month 1 Cash in Cash out (200) (1000) Net cash flow (1200) (1000) Opening balance (400) (1200) (1000) Closing balance Define ‘micro-finance’. Veronique now thinks that the cash inflow in month 3 will be $1500. Calculate the: New net cash flow in month 3: New closing balance in month 3: State four reasons why a business might have cash flow problems. Reason 1: Reason 2: Reason 3: Reason 4: 1 3 Explain one method of primary market research and one method of secondary market research Veronique could have used. Method of primary market research: Explanation: Method of secondary market research: : Explanation: Do you think being creative is the most important characteristic of being a successful entrepreneur? Justify your answer. [ 1 3
7115_w20_qp_12
THEORY
2020
Paper 1, Variant 2
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Questions Discovered
13