Sources of Finance (OCR GCSE Business): Exam Questions

The Sea View Hotel

The Sea View Hotel is a profitable hotel located near the coast. Anika and Charlie own the hotel in a business partnership. They are now considering opening a second hotel in a town further along the coast. It would cost them £1.5 million to buy the property and £0.5 million for redecoration.

To fund the £2 million expansion, the partners are considering getting a bank loan or accepting a new partner into the business. The partnership already has one bank loan but has worked out it can afford a second loan as long as the cost of borrowing does not rise too much.

If Anika and Charlie decide to take on a new partner, they would like to ask Finley, a friend of Anika’s who has just returned to the UK from travelling around the world. Finley is currently unemployed but is a keen photographer and environmental campaigner.

Anika has forecasted the following revenues and costs for the proposed 25-room hotel:

• selling price: £100 a day per room

• fixed costs: £6300 per week

• variable costs: £40 a day per room.

MD Sports Clinic

Martina Doyle currently works for the National Health Service (NHS). She has total savings of just over £5000 in her bank account. Martina is planning to leave the NHS and start up a private sports injury clinic. She intends to call her new business ‘MD Sports Clinic’.

Martina wishes to rent a property for her new business and expects to pay rent each month. She wants to take a monthly income from the business. She also wants to employ a part time receptionist.

Martina needs to buy some equipment to set up MD Sports Clinic. She has estimated the following figures for MD Sports Clinic’s first month of trading:

• fixed costs of £6000

• variable costs of £5 per session

• revenue of £30 per session.

Ricardo Costumes and Props (RCP)

Alessia and Natalia own Ricardo Costumes and Props (RCP). The business operates as a partnership. RCP makes a range of costumes and props that it sells to UK and EU theatres, schools and amateur dramatics groups.

Last year, RCP’s costumes and props were used in two very successful films. RCP’s reputation grew rapidly and its revenue increased from £1 600 000 in 2019 to £2 000 000 in 2020. More financial data for RCP in 2020 is shown in Table 1, below.

Table 1

Despite being profitable, RCP’s bank overdraft is getting bigger every month. Alessia and Natalia realise that they need to carefully consider RCP’s cash flow position.

Alessia and Natalia need to update the laser cutter and 3D printer they use to make some of the props. The total cost of these machines is likely to be over £100 000. Alessia and Natalia are unsure how to finance the purchase of the new machinery. Natalia has suggested they try and sell the old machines and use the money to buy new ones. Alessia thinks it might be better to gain extra capital by finding a new partner to join the business.

Luxury Cushions

Elizabeth owns a small business, Luxury Cushions (LC), making and selling quality cushions. She sells these to retail shops and direct to the public over the internet. When she first started, Elizabeth used social media to get herself well known. Her business really became successful when she sent some cushions to celebrities and they posted them on their Instagram accounts. Elizabeth regularly communicates to her 10000 Instagram followers when she has new designs to sell.

In 2019 LC earned £150000 in revenue and had a gross profit of £118000 and a net profit of £56800. Elizabeth has provided the following financial information:

Table 1 — Financial data for LC

Elizabeth has the opportunity to expand her business by taking over a competitor and moving into larger premises. One of her customers suggested that she could use crowdfunding to raise the £30000 she needs. However, Elizabeth thinks that she might be better using a bank loan. Even though she would need to pay interest on the loan, her stable cash flow forecast shows she should be able to afford it.

Luxury Cushions

Elizabeth owns a small business, Luxury Cushions (LC), making and selling quality cushions. She sells these to retail shops and direct to the public over the internet. When she first started, Elizabeth used social media to get herself well known. Her business really became successful when she sent some cushions to celebrities and they posted them on their Instagram accounts. Elizabeth regularly communicates to her 10000 Instagram followers when she has new designs to sell.

In 2019 LC earned £150000 in revenue and had a gross profit of £118000 and a net profit of £56800. Elizabeth has provided the following financial information:

Table 1 — Financial data for LC

Elizabeth has the opportunity to expand her business by taking over a competitor and moving into larger premises. One of her customers suggested that she could use crowdfunding to raise the £30000 she needs. However, Elizabeth thinks that she might be better using a bank loan. Even though she would need to pay interest on the loan, her stable cash flow forecast shows she should be able to afford it.