1

1 Bowland manufactures bicycles from components purchased from suppliers. The production method makes
use of specialisation. The Finance manager said: ‘It has been a successful year because profit is up. However
cash flow is still negative. Trade receivables (debtors) have increased and we have purchased a lot of new
equipment.’ Bowland’s management believes that improving quality has been the most important reason
why bicycle sales have increased.

Identify and explain two reasons why cash flow is important to Bowland.

Reason 1: .................................................................................................................................................

..................................................................................................................................................................

Explanation:.............................................................................................................................................

..................................................................................................................................................................

Reason 2:..................................................................................................................................................

..................................................................................................................................................................

Explanation:.............................................................................................................................................

.................................................................................................................................................................. [4]

[Total: 4]
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2 Bowland manufactures bicycles from components purchased from suppliers. The production method makes
use of specialisation. The Finance manager said: ‘It has been a successful year because profit is up. However
cash flow is still negative. Trade receivables (debtors) have increased and we have purchased a lot of new
equipment.’ Bowland’s management believes that improving quality has been the most important reason
why bicycle sales have increased.

Identify and explain two ways in which Bowland could improve its cash flow.

Way 1: ......................................................................................................................................................

..................................................................................................................................................................

Explanation:.............................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

Way 2:.......................................................................................................................................................

..................................................................................................................................................................

Explanation:.............................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

.................................................................................................................................................................. [6]

[Total: 6]

3 A2Z is a small but successful airline company in country B, providing flights for business people. The
management of A2Z wants the business to expand. It will have to buy more aeroplanes and recruit more
airline pilots. The Human Resources manager has produced a job description for the pilots. She is now ready
to advertise for the new pilots. She believes the best way for A2Z to motivate its pilots is to use financial
rewards.

Identify two factors that A2Z should consider when choosing a source of finance to buy more aeroplanes.

Factor 1:....................................................................................................................................................

..................................................................................................................................................................

Factor 2:....................................................................................................................................................

.................................................................................................................................................................. [2]

[Total: 2]
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4 Si and Ramon are friends. They want to set up a photography business. They would take pictures at weddings,
birthdays and other special events. The business will be a partnership. Based on their primary market research,
Si believes there is enough demand. Ramon has produced a business plan which shows they need $8000 for
a shop and $4000 for equipment. They plan to spend $500 on promotion, but cannot agree on the best method
to use.

Identify and explain two possible sources of finance that they could use to obtain the equipment.

Source 1: ..................................................................................................................................................

Explanation: ............................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

Source 2: ..................................................................................................................................................

Explanation: ............................................................................................................................................

..................................................................................................................................................................

.................................................................................................................................................................. [4]

[Total: 4]

5 What is meant by ‘revenue’?

..................................................................................................................................................................

..................................................................................................................................................................

.................................................................................................................................................................. [2]

[Total: 2]
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6 Javid is a company that manufactures a range of luxury chocolates using batch production. Over the past
year, profit has fallen due to increased competition. In order to cut costs, the Finance Director has suggested
the company introduces new technology into the production process. The Human Resources Director is not
sure that workers would benefit from the introduction of new technology.

Identify and explain two problems that a fall in profit might cause for the company.

Problem 1: ...............................................................................................................................................

..................................................................................................................................................................

Explanation:.............................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

Problem 2:................................................................................................................................................

..................................................................................................................................................................

Explanation:.............................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

.................................................................................................................................................................. [6]

[Total: 6]

7 What is meant by ‘micro-finance’?

..................................................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

.................................................................................................................................................................. [2]

[Total: 2]
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8 Kapil is a successful law partnership in the centre of a large city. It offers a range of services to small and
large business customers, including having meetings to give legal advice and writing contracts. Kapil’s
Finance manager is worried about the high level of fixed costs. He believes this is due to Kapil’s good location.
The Managing Director wants to buy a new information technology (IT) system to help improve internal
communication. She thinks technology will help remove some communication barriers.

Identify and explain two suitable sources of finance that Kapil could use to purchase the new IT system.

Source 1:...................................................................................................................................................

Explanation:.............................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

Source 2:...................................................................................................................................................

Explanation:.............................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

.................................................................................................................................................................. [6]

[Total: 6]
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9 Table: Cash flow forecast ($000’s)

Calculate the following.

July net cash flow (X):.............................................................................................................................

..................................................................................................................................................................

September opening balance (Y):..............................................................................................................

.................................................................................................................................................................. [2]

[Total: 2]
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10 HPT makes frozen food products. The Finance Director wants to improve HPT’s cash flow position. The
Table below is an incomplete cash flow forecast for the next 3 months. The Finance Director thinks HPT
should not use expensive packaging. He is also worried that new Government health & safety laws will not
benefit the company and will only add to its costs.

Table: Cash flow forecast ($000’s)

Identify and explain two benefits to HPT of having a cash flow forecast. You should refer to the Table in
your answer.

Benefit 1:..................................................................................................................................................

..................................................................................................................................................................

Explanation:.............................................................................................................................................

..................................................................................................................................................................

Benefit 2:..................................................................................................................................................

..................................................................................................................................................................

Explanation:.............................................................................................................................................

.................................................................................................................................................................. [4]

[Total: 4]

11 What is meant by an ‘overdraft’?

..................................................................................................................................................................

.................................................................................................................................................................. [2]

[Total: 2]
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12 Anyshade manufactures a range of paints. It uses flow production. The Finance manager has produced a cash
flow forecast as the business wants to arrange an overdraft with its bank. The Finance manager believes that
reducing prices is the best way to increase sales revenue. Anyshade’s paints are well known for quality.

Table: Cash flow forecast ($000’s)

Identify and explain two possible reasons why Anyshade has cash flow problems.

Reason 1:..................................................................................................................................................

..................................................................................................................................................................

Explanation:.............................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

Reason 2:..................................................................................................................................................

..................................................................................................................................................................

Explanation:.............................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

.................................................................................................................................................................. [6]

[Total: 6]
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13 Table: Cash flow forecast ($000’s)

Calculate the following.

Month 1 total cash outflows (X):.............................................................................................................

..................................................................................................................................................................

Month 2 net cash flow (Y):......................................................................................................................

.................................................................................................................................................................. [2]

[Total: 2]

14 Anouk is a sole trader. She designs and makes jewellery at home, using hired (rented) equipment. Anouk
enjoys selling the jewellery at local markets. Last year her sales revenue increased by $500 to $3000. She
plans to use $50 for a marketing budget. Anouk would like to do some primary market research when she
has time. Anouk thinks she should have a business partner.

Identify and explain two possible advantages for Anouk of hiring equipment.

Advantage 1:.............................................................................................................................................

..................................................................................................................................................................

Explanation:.............................................................................................................................................

..................................................................................................................................................................

Advantage 2:.............................................................................................................................................

..................................................................................................................................................................

Explanation:.............................................................................................................................................

.................................................................................................................................................................. [4]

[Total: 4]
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15 The Government of country B plans to build a new airport. A Government spokesperson said: ‘There will
be external costs, but I think there will be more benefits for the local community. We have to support businesses
such as airlines in the private sector’. RU Air is one of the world’s most profitable airlines. RU has announced
plans on its website that it will operate flights to and from country B in the future. RU is a public limited
company.

Identify and explain two benefits to RU Air of high profits.

Benefit 1:..................................................................................................................................................

..................................................................................................................................................................

Explanation:.............................................................................................................................................

..................................................................................................................................................................

Benefit 2:..................................................................................................................................................

..................................................................................................................................................................

Explanation:.............................................................................................................................................

.................................................................................................................................................................. [4]

[Total: 4]

16 What is meant by the ‘private sector’?

..................................................................................................................................................................

..................................................................................................................................................................

..................................................................................................................................................................

.................................................................................................................................................................. [2]

[Total: 2]