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Question 1 Report
Fig. 1 shows the finance routes being considered by Nia, who owns a market stall selling repaired bicycles. Her business has made a profit of $6 000, but she needs $18 000 to buy a mobile repair van. Nia wants to keep control of the business and needs the cash for at least three years. She has asked her two employees to research the following options before she selects an answer.
(a) Define the term retained profit. [2]
(b) State one reason why the bank loan is an external source of finance. [1]
(c) Calculate the amount of finance still required if Nia uses all of the retained profit. [2]
(d) Analyse which one of the following options, a bank loan or a new partner, is likely to be better for Nia. [3]
(a) Retained profit is profit kept in the business rather than paid to the owner or shareholders. [2]
(b) A bank loan is external finance because the money comes from outside the business, specifically from a bank. [1]
(c)
\[\$18\,000-\$6\,000=\$12\,000\]
Finance still required is \(\$12\,000\). [2]
(d) A bank loan lets Nia retain ownership and control, which matches her objective. Repayments can be spread over the three years for which she needs finance. However, interest and repayments reduce cash flow. A new partner may provide funds without loan repayments, but the partner shares control and future profit. A supported choice of either source is acceptable; because control is important to Nia, a manageable bank loan is likely to fit better. [3]
(a) Retained profit is profit kept in the business rather than paid to the owner or shareholders. [2]
(b) A bank loan is external finance because the money comes from outside the business, specifically from a bank. [1]
(c)
\[\$18\,000-\$6\,000=\$12\,000\]
Finance still required is \(\$12\,000\). [2]
(d) A bank loan lets Nia retain ownership and control, which matches her objective. Repayments can be spread over the three years for which she needs finance. However, interest and repayments reduce cash flow. A new partner may provide funds without loan repayments, but the partner shares control and future profit. A supported choice of either source is acceptable; because control is important to Nia, a manageable bank loan is likely to fit better. [3]
Question 2 Report
Emirates is reviewing its market research before promoting a new direct route for business travellers. The airline has bought an industry report showing passenger numbers on similar routes, average fares and the growth of video meetings. This is secondary research. Emirates also plans to email a questionnaire to members of its frequent-flyer programme. The email asks customers to select their most important factor when choosing a flight: price, departure time, baggage allowance or airport location. The research budget could instead be used for telephone interviews with 25 companies.
(a) Define the term secondary market research. [2]
(b) State two advantages of Emirates purchasing the industry report. [2]
(c) Calculate the cost per company interview if the telephone-interview budget is £1,500 and 25 companies are interviewed. Show your working. [3]
(d) State three reasons why Emirates should include an option such as “other” in its email question. [3]
(e) Analyse which option Emirates should select: buying the industry report, emailing frequent flyers or conducting telephone interviews with companies. [10]
(a) Secondary market research is information that has already been collected by another person or organisation, and is then used by the business for its own research. [2]
(b) Purchasing the report is quicker than collecting new data and may cost less than carrying out a large primary survey. It also provides market-wide data on passenger numbers and fares, allowing Emirates to compare similar routes. Any two valid advantages gain credit. [2]
(c) Divide the total interview budget by the number of companies interviewed:
\[£1500\div25=£60\]
The cost is £60 per company interview. [3]
(d) An other response is important because a customer may value a factor not listed. It avoids forcing the customer to select an inaccurate answer, and it can reveal unexpected decision factors that improve future questions and the validity of the research. Any three points gain credit. [3]
(e) The industry report gives broad existing evidence about similar routes, fares and market size, so it is useful as a quick starting point. However, its findings may not be specific to Emirates' proposed route or its particular business-traveller customers.
Emailing frequent flyers can reach many known customers cheaply and provides quantitative data about stated preferences. However, frequent flyers may be more loyal and travel more often than typical passengers, so they may not represent the whole potential market.
Telephone interviews with companies can provide detailed evidence about corporate travel needs, such as booking policies and required departure times. This is particularly relevant because the route is aimed at business travellers. However, 25 companies is a small, relatively costly sample at £60 each.
A strong decision is to use the industry report first for market size and route comparisons, email frequent flyers for a larger low-cost survey, then interview a small number of important companies for detailed evidence. This combines breadth, low cost and relevant detail rather than relying on one limited source. [10]
(a) Secondary market research is information that has already been collected by another person or organisation, and is then used by the business for its own research. [2]
(b) Purchasing the report is quicker than collecting new data and may cost less than carrying out a large primary survey. It also provides market-wide data on passenger numbers and fares, allowing Emirates to compare similar routes. Any two valid advantages gain credit. [2]
(c) Divide the total interview budget by the number of companies interviewed:
\[£1500\div25=£60\]
The cost is £60 per company interview. [3]
(d) An other response is important because a customer may value a factor not listed. It avoids forcing the customer to select an inaccurate answer, and it can reveal unexpected decision factors that improve future questions and the validity of the research. Any three points gain credit. [3]
(e) The industry report gives broad existing evidence about similar routes, fares and market size, so it is useful as a quick starting point. However, its findings may not be specific to Emirates' proposed route or its particular business-traveller customers.
Emailing frequent flyers can reach many known customers cheaply and provides quantitative data about stated preferences. However, frequent flyers may be more loyal and travel more often than typical passengers, so they may not represent the whole potential market.
Telephone interviews with companies can provide detailed evidence about corporate travel needs, such as booking policies and required departure times. This is particularly relevant because the route is aimed at business travellers. However, 25 companies is a small, relatively costly sample at £60 each.
A strong decision is to use the industry report first for market size and route comparisons, email frequent flyers for a larger low-cost survey, then interview a small number of important companies for detailed evidence. This combines breadth, low cost and relevant detail rather than relying on one limited source. [10]
Question 3 Report
Starbucks is testing a reusable cup deposit scheme near a university. Customers would pay a £1 deposit, return the cup to any participating branch and receive the £1 back. Before the trial, Starbucks plans to ask 200 students a short questionnaire at different campus entrances. The questionnaire uses a five-point rating scale from “very unlikely” to “very likely” for using the scheme. It also asks students to state their usual weekly number of takeaway hot drinks. The business must decide whether the questions will produce useful information.
(a) Define the term pilot survey. [2]
(b) State two reasons why Starbucks should test the questionnaire before giving it to 200 students. [2]
(c) Calculate the total value of deposits held if 340 cups are not returned during the first week and each deposit is £1. Show your working. [3]
(d) State three benefits of using a five-point rating scale in the questionnaire. [3]
(e) Analyse whether surveying students at campus entrances will give Starbucks valid market-research results for the reusable cup scheme. [10]
(a) A pilot survey is a small-scale test of a questionnaire or survey carried out before the main research. [2]
(b) Testing the questionnaire can identify unclear questions and unsuitable answer options. It can also show how long completion takes, reveal layout problems and improve validity before surveying all 200 students. Any two gain credit. [2]
(c)
\[340\times£1=£340\]
The total value of deposits held is £340. [3]
(d) A five-point scale shows the strength of a respondent's opinion, gives more detail than yes/no, and produces answers that can be counted and compared. It is also quick to complete. Any three benefits gain credit. [3]
(e) Campus entrances allow Starbucks to contact many students conveniently. Using different entrances and times could include students from different courses and improve coverage. This makes the method useful if Starbucks is considering a trial near a university.
However, students are not the whole Starbucks market, so the findings may not represent office workers, families or other customers. Students in a hurry may give rushed answers. Most importantly, stating that they are likely to use the scheme does not prove they will use it when they must pay a £1 deposit.
Starbucks should sample systematically at several entrances and times, include several campuses, and survey existing branch customers too. A small branch trial measuring actual cup returns would provide behavioural evidence. Campus research is useful for a university-area trial but is insufficient by itself for a wider rollout. [10]
(a) A pilot survey is a small-scale test of a questionnaire or survey carried out before the main research. [2]
(b) Testing the questionnaire can identify unclear questions and unsuitable answer options. It can also show how long completion takes, reveal layout problems and improve validity before surveying all 200 students. Any two gain credit. [2]
(c)
\[340\times£1=£340\]
The total value of deposits held is £340. [3]
(d) A five-point scale shows the strength of a respondent's opinion, gives more detail than yes/no, and produces answers that can be counted and compared. It is also quick to complete. Any three benefits gain credit. [3]
(e) Campus entrances allow Starbucks to contact many students conveniently. Using different entrances and times could include students from different courses and improve coverage. This makes the method useful if Starbucks is considering a trial near a university.
However, students are not the whole Starbucks market, so the findings may not represent office workers, families or other customers. Students in a hurry may give rushed answers. Most importantly, stating that they are likely to use the scheme does not prove they will use it when they must pay a £1 deposit.
Starbucks should sample systematically at several entrances and times, include several campuses, and survey existing branch customers too. A small branch trial measuring actual cup returns would provide behavioural evidence. Campus research is useful for a university-area trial but is insufficient by itself for a wider rollout. [10]
Question 4 Report
Read the information below about a start-up business. A former Huawei technician is planning a service that collects unwanted phones from offices, erases data and sells reusable parts. He needs $9 000 for secure testing equipment. He can use a credit card, ask an investor for equity finance or wait until enough profit has been retained. The technician has no employees yet, but expects to recruit two staff if the business grows. He is considering which option best matches the risk of a new market.
(a) Define the term equity finance. [2]
(b) State one source of internal finance available to an established business. [1]
(c) Calculate the percentage of the $9 000 requirement covered by an investor providing $3 600. [2]
(d) Analyse one reason why waiting to use retained profit may limit the growth of this start-up. [3]
(a) Equity finance is finance raised by selling ownership or shares in a business to investors. [2]
(b) One internal source is retained profit. Sale of assets or owner's savings are also valid. [1]
(c)
\[\frac{\$3\,600}{\$9\,000}\times100=40\%\]
The investor covers \(40\%\) of the requirement. [2]
(d) Retained profit can be used only after the business has first made profit. Waiting therefore delays buying secure testing equipment and recruiting staff. Rivals may serve the market first, reducing possible revenue growth. [3]
(a) Equity finance is finance raised by selling ownership or shares in a business to investors. [2]
(b) One internal source is retained profit. Sale of assets or owner's savings are also valid. [1]
(c)
\[\frac{\$3\,600}{\$9\,000}\times100=40\%\]
The investor covers \(40\%\) of the requirement. [2]
(d) Retained profit can be used only after the business has first made profit. Waiting therefore delays buying secure testing equipment and recruiting staff. Rivals may serve the market first, reducing possible revenue growth. [3]
Question 5 Report
The diagram shows how Riverside Toys prepared its profit statement. The business makes wooden learning products for children and has received an order from a large retailer similar to IKEA. Management needs to decide whether to accept the order at a lower selling price. Sales revenue is $600 000. The cost of timber, packaging and production wages is $390 000. Operating expenses, including shop rent, marketing and salaries, are $150 000. The finance manager says that the information should be used with knowledge of the business's previous results before a final decision is made.
(a) State the name given to sales revenue less cost of sales. [1]
(b) Define operating expenses. [1]
(c) Calculate Riverside Toys' net profit for the year. Show your working. [3]
(d) Analyse whether Riverside Toys should accept the lower-priced IKEA-style order. [5]
(a) Sales revenue less cost of sales is gross profit. [1]
(b) Operating expenses are costs of running the business that are not direct costs of making the goods sold, such as rent, marketing and salaries. [1]
(c) \[\text{Gross profit}=\$600000-\$390000=\$210000\] \[\text{Net profit}=\$210000-\$150000=\$60000\] Riverside Toys' net profit is $60,000. [3]
(d) The order could increase sales revenue and output. If Riverside has spare capacity, additional revenue may raise total profit even though the selling price is lower. However, a lower price may reduce gross profit margin. A large retailer may also demand low prices or strict payment terms, affecting cash flow. Riverside should calculate the extra contribution from the order and compare it with spare capacity and previous profit margins before accepting. [5]
(a) Sales revenue less cost of sales is gross profit. [1]
(b) Operating expenses are costs of running the business that are not direct costs of making the goods sold, such as rent, marketing and salaries. [1]
(c) \[\text{Gross profit}=\$600000-\$390000=\$210000\] \[\text{Net profit}=\$210000-\$150000=\$60000\] Riverside Toys' net profit is $60,000. [3]
(d) The order could increase sales revenue and output. If Riverside has spare capacity, additional revenue may raise total profit even though the selling price is lower. However, a lower price may reduce gross profit margin. A large retailer may also demand low prices or strict payment terms, affecting cash flow. Riverside should calculate the extra contribution from the order and compare it with spare capacity and previous profit margins before accepting. [5]
Question 6 Report
The diagram shows two leisure businesses in the same town. Riverside Active is controlled by the elected city council and receives a grant funded by local taxes. Peak Fitness plc is owned by shareholders, who can buy and sell shares. Both businesses are near a Premier Inn and want to attract hotel guests as well as local customers. The council is deciding whether to keep Riverside Active in public-sector ownership or sell it to Peak Fitness.
In one year, Riverside Active receives £240 000 from the council and £360 000 from membership fees. Use this information to answer the following questions.
(a) State the classification of Riverside Active. [2]
(b) Define the term public limited company. [3]
(c) Calculate membership fees as a percentage of Riverside Active's total income. [3]
(d) Analyse one reason why the council may choose to keep Riverside Active in the public sector. [6]
(a) Riverside Active is a public-sector business. It is owned or controlled by local government, here the elected city council. [2]
(b) A public limited company is a business owned by shareholders. Its shares can be sold to the public, commonly through a stock exchange, and shareholders have limited liability. Limited liability means they normally risk only the money invested in shares. [3]
(c) Membership fees as a percentage of total income
\[\text{Total income}=£240\,000+£360\,000=£600\,000\]
\[\frac{£360\,000}{£600\,000}\times100=60\%\]
Membership fees are 60% of total income. [3]
(d) Why the council may keep Riverside Active public: public ownership allows the council to prioritise residents' access and community objectives rather than maximum profit. It may keep membership prices affordable for lower-income residents. Council funding can also support a leisure facility that a private owner might close if it was insufficiently profitable. Retaining ownership lets the council promote health and community participation; visitors staying at the nearby hotel may also spend money more widely in the town. A valid counterpoint is that the £240 000 grant could be used for other public services, or a private owner may operate more efficiently. Developed analysis earns up to [6].
(a) Riverside Active is a public-sector business. It is owned or controlled by local government, here the elected city council. [2]
(b) A public limited company is a business owned by shareholders. Its shares can be sold to the public, commonly through a stock exchange, and shareholders have limited liability. Limited liability means they normally risk only the money invested in shares. [3]
(c) Membership fees as a percentage of total income
\[\text{Total income}=£240\,000+£360\,000=£600\,000\]
\[\frac{£360\,000}{£600\,000}\times100=60\%\]
Membership fees are 60% of total income. [3]
(d) Why the council may keep Riverside Active public: public ownership allows the council to prioritise residents' access and community objectives rather than maximum profit. It may keep membership prices affordable for lower-income residents. Council funding can also support a leisure facility that a private owner might close if it was insufficiently profitable. Retaining ownership lets the council promote health and community participation; visitors staying at the nearby hotel may also spend money more widely in the town. A valid counterpoint is that the £240 000 grant could be used for other public services, or a private owner may operate more efficiently. Developed analysis earns up to [6].
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