1.

Pan Bam Ltd is a medium-sized bread-making firm. It has a manufacturing plant in the outskirts
of the capital, and from there it distributes to all the supermarkets within a 400 mile radius (640
km). The distribution is in the hands of an independent transport firm. Currently Pan Bam is
undergoing changes and its Board of Directors is considering different investment proposals.
The three proposals are:
1.

To buy 5 trucks (lorries) and therefore become independent of the

distributing firm.

2.

To open up a second branch in the second most important city of the country,
located 1000km away from the capital and where people speak a different
dialect.

3.

To buy a new machine to make different (yet bread related) products.

The proposals are to be financed in the following manner:

1.
2.
3.

2.

leasing the vehicles;

issuing more shares;
a medium-term loan from a bank.

Assess the advantages and disadvantages of financing each proposal in the manner described
above.
(Total 6 marks)

3.

Double Deckers Private Limited

Double Deckers Private Limited was set up by three bus drivers who have taken over a rural bus
service from the local government. The bus drivers were advised by a business consultant to
form a private limited company rather than a partnership, and to monitor carefully the cash flow
of the business since most small businesses experience cash flow difficulties in their first year.
The drivers are hoping to be able to purchase a new bus later in the year using internal funds.
Relevant data for the cash flow is provided as follows:
on 31 December 2005 Double Deckers Private Limited had a cash balance of $500
rent for the premises amounts to $2000 per year, and is payable in equal instalments in
January, April, July and October
a quarterly electricity bill of $150 is to be paid in February, May, August and November
Double Deckers Private Limited intend to employ part-time labour in June, July and August
at a cost of $500 for each of those months
the bus drivers withdraw a total of $700 per month for expenses
fuel costs are expected to be $200 per month
Double Deckers Private Limited forecast that income for the first six months of 2006 will be
as follows:

January
February
March
April
May
June

1200
1200
1200
1200
1200
2200

4.

Explain two advantages and two disadvantages of using internal funds to purchase a new bus.
(Total 4 marks)

5.

The Segway
The Segway, a mystery invention described as the next best thing in the USA before its
launch, was revealed in 2002 to be a super hi-technology, environmentally-friendly scooter,
which would be operated on pavements (sidewalks). The launch was delayed by the need to
patent unique aspects of the scooters design.
This revolutionary urban vehicle ran into considerable difficulties after concerns were expressed
about health and safety issues. An overweight nation would be offered another excuse to stop
walking, and injuries to old and disabled people might be caused by collisions with the scooter.
San Francisco, the first city in the USA to offer government workers, notably postmen, the
opportunity to try the Segway, later banned its use on pavements.
There is no disputing the advanced nature of the machines technology that keeps the rider
balanced, but with speeds of up to three times that of other pavement users, it threatens injuries
that some government authorities will not risk. Despite this, the product was launched by its
entrepreneurial inventor on the Internet and early sales were encouraging.
Eight out of ten new products fail within the first two years of their life. The rocky path of this
new product brings memories of other inventions that failed in the early stages of their life cycle
such as the Sinclair C5, a battery powered tricycle that proved far too small and dangerous to
operate, as intended, on public highways.
[Source: adapted from Revolutionary Segway pavement scooter runs out of road amid fears for America's health,
The Independent, 21 January 2003]

6.

Evaluate the potential sources of finance available to developers of innovative products, such as
the Segway, and explain why finding such finance may be difficult.
(Total 8 marks)