Investment appraisal

State one reason why customer service is important to a business.

State two advantages to a business of having an overdraft.

Explain why cash is important to a business.

Calculate the average rate of return (ARR) for the new coffee machine.

Show your workings.

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Analyse the change in the cost of the pizza dough between 2022 and 2024.

State two factors that influence where to locate a business.

Discuss whether Riley should relocate to a restaurant or continue to operate from the caravan.

An entrepreneur has invested £150 000 to start up their own business. Their expected average rate of return is 10% per annum for the first three years.

Over the first three years of trading, the entrepreneur should expect to make:

A average profits of £45 000 per year

B average profits of £135 000 per year

C profits totalling £15 000

D profits totalling £45 000

Four years ago an entrepreneur invested £200 000 to start up their own business. The business is making an average profit of £53 000 per year.

The entrepreneur’s average rate of return is:

A 6.6%

B 26.5%

C 73.5%

D 106%

Text 2 Quality Textiles (QT)

Quality Textiles Ltd (QT) is a medium-sized, established business that manufactures clothes from its factory in Birmingham. Its clothes are sold to retail shops around the country. A summary of its profitability is shown in Table 1.

QT wants to expand the business by using a bank loan to buy a large van to help with deliveries. It will use average rate of return (ARR) to assess which model of van it will buy. Further information is provided in Table 2, below. The new van will mean employing a driver, in addition to the five drivers already working for the business.

QT’s cash flow forecast suggests it may struggle to pay the monthly van loan repayment. QT’s closing bank balance for the last five months is shown in Fig. 1.

QT had problems earlier in the year. It found its way into the local newspaper as part of an investigation into ethical practices in its business activities and supply chain.

Identify one method of selling products to customers.

Identify two ethical considerations for a business.

Explain one reason why a business should act ethically.

Calculate the average rate of return (ARR) for the Standard Van by using the information in Table 2.

Show your workings

Answer........ %

Analyse one reason why QT should buy the Standard Van. Refer to Table 2 in your answer.

Analyse QT’s cash position considering its current expansion plans.

Analyse QT’s profit position considering its current expansion plans.

Recommend whether QT’s cash position or profit position will have the biggest impact on its expansion plans.

An advertising agency wishes to upgrade its design software at a cost of £60 000. The net cash flow generated by the software for each of the next two years is forecast to be £60 000.

Assuming the forecasted figures are correct, the average rate of return for this upgrade will be:

A 33%

B 50%

C 67%

D 100%