A food-truck business selling hot sandwiches has built a loyal customer base at weekend markets. Its owner wants to buy a second truck so that food can be s...
Question 1 Report
A food-truck business selling hot sandwiches has built a loyal customer base at weekend markets. Its owner wants to buy a second truck so that food can be sold at two locations. The owner has some retained profit but may also need finance.
(a) Identify one source of internal finance the owner could use to help expand the business. [1]
(b) Explain one reason why buying a second truck could increase the business's sales revenue. [2]
(c) Which type of finance, internal or external, is likely to be more suitable if the owner needs to purchase the truck immediately? Explain your answer. [1]
Answer Details
(a) Retained profit, also called retained earnings, is an internal source of finance because it comes from profit kept within the business. [1]
(b) A second truck can trade in a different location at the same time as the original truck. More customers can therefore buy the sandwiches, so total sales revenue may increase. [2]
(c) External finance is more suitable if the truck must be bought immediately. It can provide a large sum at once, whereas using retained profit alone may require the owner to wait for sufficient profit to build up. [1]
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