When a mobile coffee cart business reviewed its market research, it found that customers at two nearby office parks wanted morning deliveries. The owner has...
Question 1 Report
When a mobile coffee cart business reviewed its market research, it found that customers at two nearby office parks wanted morning deliveries. The owner has sufficient retained profit from recent sales and wants to increase the business without selling shares or joining another business. The following are possible plans.
(a) Which one of the following is an internal method of growth for the coffee business?
A. Purchase a competing coffee cart
B. Open a second coffee cart using retained profit
C. Form a merger with a local bakery
D. Take over a national coffee manufacturer [1]
(b) Identify one advantage to the owner of using retained profit to finance this growth. [1]
(c) Explain one reason why the owner should use market research before deciding which office park to serve. [2]
(d) What effect could opening a second cart have on the business's costs? [1]
Answer Details
(a) Opening a second coffee cart using retained profit is an internal method of growth. [1] The business expands its own operations rather than merging with or taking over another business.
(b) Retained profit has no interest payments. [1] It also allows the owner to keep ownership and control, without having to repay a lender.
(c) Market research identifies the level of customer demand at each office park. [1] The owner can then select the location or products most likely to increase sales and avoid spending money where demand is low. [1]
(d) Costs are likely to increase because the business may need another cart, more stock, and possibly another employee. [1]
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