Types & sources of business finance

Which source of finance allows goods to be obtained without immediate payment to the supplier?

A Crowdfunding

B Overdraft

C Sale of assets

D Trade credit

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.

........ %

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.

Text 3

_{Adapted from www.computerweekly.com/news/366555332/Gymshark-turns-to-Google-Cloud-for-infrastructure-revamp-and-generative-AI-trials and www.retailgazette.co.uk/blog/2022/10/gymshark-ben-francis-ipo-sale/ and uk.gymshark.com/pages/about-us and en.wikipedia.org/wiki/Gymshark a}Gymshark Ltd

State one method of selling.

Analyse one likely impact on Gymshark Ltd’s customer service of using technology such as Artificial Intelligence (AI) within its app.

Analyse one advantage for Gymshark Ltd of operating as a multinational company (MNC).

Analyse one advantage and one disadvantage for Gymshark Ltd of raising additional finance by issuing shares.

Recommend whether Gymshark Ltd should use a share issue or retained profit to fund future expansion.

* Evaluate whether the economic climate is likely to affect Gymshark Ltd’s marketing decisions.

Text 2

The Sea View Hotel

The Sea View Hotel is a profitable hotel located near the coast. Anika and Charlie own the hotel in a business partnership. They are now considering opening a second hotel in a town further along the coast. It would cost them £1.5 million to buy the property and £0.5 million for redecoration.

To fund the £2 million expansion, the partners are considering getting a bank loan or accepting a new partner into the business. The partnership already has one bank loan but has worked out it can afford a second loan as long as the cost of borrowing does not rise too much.

If Anika and Charlie decide to take on a new partner, they would like to ask Finley, a friend of Anika’s who has just returned to the UK from travelling around the world. Finley is currently unemployed but is a keen photographer and environmental campaigner.

Anika has forecasted the following revenues and costs for the proposed 25-room hotel:

• selling price: £100 a day per room

• fixed costs: £6300 per week

• variable costs: £40 a day per room.

Identify one reason, other than expansion, why a business needs finance.

Explain why profit is important to a business’ future.

Calculate the daily break-even quantity for the proposed hotel.

Analyse one disadvantage to the partnership if the proposed hotel’s fixed costs were 10% higher than expected.

Identify two uses of a cash flow forecast to a business.

Analyse one advantage to the partnership of taking on Finley as a new partner to fund the proposed hotel.

Analyse one disadvantage to the partnership of taking on Finley as a new partner to fund the proposed hotel.

Recommend whether the partnership should take on Finley as a new partner or use a bank loan to fund the proposed hotel.

Which of the following is least likely to be a reason for a business to need finance?

A To decrease the size of the workforce

B To extend a marketing campaign

C To increase the size of its factory

D To reduce the amount of stock it purchases

Emma and Henry are in a partnership that runs a small building firm. Despite being profitable, the business is having difficulty paying all its expenses.

Which of the following would help Emma and Henry deal with this problem?

A Holding larger stocks of raw materials

B Increasing the labourers’ wages

C Issuing shares

D Taking on a new partner

Which of the following is an advantage of receiving trade credit?

A It can be used to pay wages and salaries

B It encourages production operatives to work harder

C It is often interest free

D It may bring new skills into the business

Which of the following is a benefit to a public limited company of using a share issue to raise finance?

A Dividends will need to be paid

B New skills will be brought into the company

C No interest will be paid

D Repayments will be spread over a long period of time

Text 2

Ricardo Costumes and Props (RCP)

Alessia and Natalia own Ricardo Costumes and Props (RCP). The business operates as a partnership. RCP makes a range of costumes and props that it sells to UK and EU theatres, schools and amateur dramatics groups.

Last year, RCP’s costumes and props were used in two very successful films. RCP’s reputation grew rapidly and its revenue increased from £1 600 000 in 2019 to £2 000 000 in 2020. More financial data for RCP in 2020 is shown in Table 1, below.

Despite being profitable, RCP’s bank overdraft is getting bigger every month. Alessia and Natalia realise that they need to carefully consider RCP’s cash flow position.

Alessia and Natalia need to update the laser cutter and 3D printer they use to make some of the props. The total cost of these machines is likely to be over £100 000. Alessia and Natalia are unsure how to finance the purchase of the new machinery. Natalia has suggested they try and sell the old machines and use the money to buy new ones. Alessia thinks it might be better to gain extra capital by finding a new partner to join the business.

State one reason why cash is important to a business.

Explain one use of a cash flow forecast in a business.

Identify two variable costs which a business may incur.

Calculate RCP’s net profit for 2020.

Show your workings.

Answer £........

Analyse one way Alessia and Natalia could use the data shown in Table 1 to improve their net profit margin.

Analyse one advantage to RCP of selling its old machines to finance the purchase of the new machinery.

Analyse one disadvantage to RCP of selling its old machines to finance the purchase of the new machinery.

Recommend whether RCP should finance the purchase of the new machinery by selling its old machines or by taking on a new partner.