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.
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Sources of Finance (AQA A Level Business): Exam Questions
Exam code: 7132
1 hour8 questions
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.
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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.
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4
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?
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5
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.
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6
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.
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7
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.
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8
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 | 31.3.2016 | 31.3.2017 | |
Inventories | 200 | 230 | 250 |
Receivables | 300 | 500 | 690 |
Cash | 400 | 200 | 0 |
Total current assets | 900 | 930 | 940 |
Payables | 500 | 530 | 550 |
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