Fig. 1 shows information from a business plan prepared by two friends who want to start a board-game café. Customers would pay an entry fee and could buy sn...
Question 1 Report
Fig. 1 shows information from a business plan prepared by two friends who want to start a board-game café. Customers would pay an entry fee and could buy snacks and drinks. The friends have surveyed university students, nearby office workers and parents, but they are unsure whether to take a bank loan for refurbishment.
| Source | Amount ($) |
|---|---|
| Owners' savings | 9000 |
| Bank loan | 15000 |
| Expected refurbishment cost | 18000 |
| Furniture and games | 4500 |
| Opening stock of food and drinks | 1500 |
(a) Show the total start-up costs. [2]
(b) Show whether the proposed finance is sufficient to meet the start-up costs. [2]
(c) Explain one advantage of the owners using some savings rather than borrowing all the finance. [2]
(d) Explain one limitation of using the survey results to predict demand for the café. [2]
Answer Details
(a) Total start-up costs are calculated by adding every planned start-up item:
\[\$18\,000 + \$4\,500 + \$1\,500 = \$24\,000\]
The total start-up costs are $24 000. [2]
(b) The proposed finance is:
\[\$9\,000 + \$15\,000 = \$24\,000\]
This exactly equals the start-up costs of $24 000. Therefore, finance is sufficient: there is no surplus and no shortfall. [2]
(c) Using some owners' savings reduces the amount that must be borrowed. As a result, interest payments are lower and there is less risk that the business will struggle to make loan repayments. [2]
(d) Survey respondents may say that they intend to visit the café but may not actually spend money there. Also, even though several groups were surveyed, they may not represent all local customers. This makes demand and sales forecasts less reliable. [2]
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