Sources of Finance (AQA A Level Business): Exam Questions

Exam code: 7132

Syllabus Edition

First teaching 2023

Last exams 2027

2 hours12 questions
1
2 marks

Case Study

Zani

Zani PLC is a jewellery retailer. Its products include rings, necklaces and bracelets that are made with precious metals and gemstones. Zani PLC has a strong brand reputation for unique designs. The company targets high-income earners. The price elasticity of demand for Zani PLC’s products is estimated to be –0.4.

Zani PLC was established in 2005 by Ted Zani. Ted had previously worked for a big multinational jewellery business but left because he wanted to be his own boss. He set up the business with venture capital. In its early years, with Ted in charge, the company had a power culture (according to Handy’s model). Shareholders felt a change of culture was necessary as the business got bigger and so Ted was replaced as Chief Executive in 2013.

Zani PLC set up 16 of its own stores in its first eight years. The company has continued to grow since then by selling 150 franchises around the world.

What is meant by venture capital?

2
1 mark

Statement 1: ‘Debt factoring is usually a short-term source of finance.’
Statement 2: ‘Bank overdrafts are usually a long-term source of finance.’

Read statements 1 and 2 and select the correct option from the following

  • Statement 1 is true. Statement 2 is true.

  • Statement 1 is true. Statement 2 is false.

  • Statement 1 is false. Statement 2 is true.

  • Statement 1 is false. Statement 2 is false.

1
4 marks

Aldercroft Bakery has firm orders from three supermarkets, but it cannot pay its flour supplier until those supermarkets settle their invoices in 60 days.

Explain why Aldercroft Bakery needs finance for working capital.

2
4 marks

Kestrel Cycles is a start-up designing a folding electric bike. It has no trading record and two banks have already refused it a loan. It plans to raise the £80,000 it needs by crowdfunding.

Explain one advantage to Kestrel Cycles of using crowdfunding to raise this finance.

3
5 marks

Halstock Foods has £400,000 of retained profit. Its shareholders have asked for a larger dividend, while the board wants to fund a new production line.

Explain the issues Halstock Foods should consider in deciding how to use its retained profit.

4
6 marks

Thornhill Diagnostics Ltd has developed a blood-testing device but needs £2 million to take it through clinical trials and into production. It has no revenue yet and no assets to offer a lender as security. A venture capital firm has offered the £2 million in exchange for a 30% shareholding.

Analyse how venture capital could help Thornhill Diagnostics Ltd raise the finance it needs.

5
6 marks

Table 1 shows two options Ravenhead Supplies is considering for raising finance.

Calculate:

  • the total interest Ravenhead Supplies would pay over the three-year term of the bank loan

  • the amount the factor would retain from £180,000 of invoices.

1
9 marks

Analyse why a public limited company might prefer to use share capital as a source of finance, rather than a bank loan.

2
20 marks

Read the case study in the Insert (opens in a new tab).

Logger Boards Ltd has been offered a bank loan at 5% interest per year for the £500 000 needed to finance the building of its new production facility.

Using Appendix B and other information, to what extent is using a bank loan too big a risk for the business?

Use quantitative and qualitative information to justify your view.

3
16 marks

Read the case study in the Insert (opens in a new tab).

Using information from Appendix C and the case study, recommend whether the use of debt factoring is a good way for SSN Ltd to improve its cash flow.

4
9 marks

To fund a new project, a business increases the proportion of its long-term funding that is debt. Analyse how this change might affect the level of dividends received by shareholders.

5
9 marks

Use the data in Figure 5 to explain how the use of debt factoring would benefit ABC Ltd.

Figure 5: Extracts from the balance sheet of ABC Ltd.

31.3.2015
(£000)

31.3.2016
(£000)

31.3.2017
(£000)

Inventories

200

230

250

Receivables

300

500

690

Cash

400

200

0

Total current assets

900

930

940

Payables

500

530

550