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

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.

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.

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.

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.

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.

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

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.

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.

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.

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.