Business Studies · Oct / Nov 2025 · Paper 11 · Question 2

0450

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CPW is a private sector business which has many objectives. It sells electrical goods including kettles and ovens in its 36 shops in country X. CPW also offers a delivery service. The business buys all its inventory from local suppliers to avoid import tariffs. The Finance Director is analysing CPWps statement of financial position. An extract is shown in Table 2.1. He has been asked to find a source of finance to purchase 10 new delivery vehicles. 2 Table 2.1 Extract from CPW’s statement of financial position for 2024 ($ million) 120 Non-current assets 70 Current assets 110 Current liabilities 75 Non-current liabilities

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2(a)[2]
Define ‘import tariff’. Award 2 marks for a full definition. Award 1 mark for a partial definition.
A tax (placed) on imported goods [2]
A tax applied to the value of imported goods [2]
A specific form of tax imposed/charged on imported goods [2]
Partial definition:
A type of tax [1]
2 First mark is for understanding this is a tax.
2(b)[2]
Identify one non-current asset and one current liability. Award 1 mark per non-current asset/current liability (max 2). Points might include: Non-current assets:
Machinery
Equipment
Land
Buildings/shops/factories/offices
Motor vehicles/delivery vehicles Current liabilities:
Overdraft
Short-term loan
Trade payables (creditors) Other appropriate responses should be credited. 2 Only award the first responses given for each.
2(c)[4]
Outline two ways the information in Table 2.1 might be useful to CPW. Award 1 mark for each relevant way (max 2). Award 1 mark for each relevant reference to this business (max 2). Points might include:
Show value of liabilities/what the business owes [k] as has current liabilities of $110 million [app]
Show value of assets/what the business owns [k] which is $190 million [app]
Support loan application/help raise finance [k] for the 10 vehicles [app]
Calculate working capital/current assets minus current liabilities [k] of this private sector business [app]
Show how the business finances its activities [k] when selling kettles/ovens [app]
Calculate current ratio/ratio of current assets to current liabilities [k] 0.63:1/0.64:1 [app]
Compare performance with other businesses [k]
Compare performance over time/against other years [k]
Show value of the business/capital employed [k] $80 million [app]
Equity/owners capital [k] of $5 million [app] Other appropriate responses should be credited. 4 To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question:
Private sector business
Electrical goods or examples such as kettles/ovens
(36) shops
(Inventory from) local suppliers
Import tariffs
Delivery (service)
(10) vehicles
Source of finance
Local suppliers
$75 million (non-current liabilities)
$120 million (non-current assets)
$110 million (current liabilities)
$70 million (current assets)
0.63:1/0.64:1 (current ratio)
$190 million (value of assets)
Negative $40 million (working capital)
$80 million (capital employed)
$5 million (equity) Other appropriate examples can be credited. Can award ‘assess liquidity’ where no individual liquidity ratios identified.
2(d)[6]
Explain two factors CPW should consider when deciding on a source of finance for the new vehicles. Award 1 mark for identification of each relevant factor (max 2). Award 1 mark for each relevant reference to this business (max 2). Award 1 mark for each relevant explanation (max 2). Points might include:
Amount required [k] for the 10 (vehicles) [app] because this is a large amount a bank loan/selling non-current assets maybe required [an]
Current level of borrowing/loans [k] as the bank might not be willing to lend extra finance [an] when have non- current liabilities of $75 million [app]
Time period [k] as the vehicles may be needed for the long-term, the source needs to be long-term [an] to make deliveries [app]
Cost of finance/is it affordable [k] as high interest rates could increase cash outflows/expenses [an] adding to its current liabilities of $110 million [an]
Size/legal form of the business [k] of this private sector business [app]
Security/collateral needed [k]
Level of control [k]
How urgently the funds are required [k] Other appropriate responses should be credited. 6 To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made. The following words are likely to be appropriate for this question:
Private sector (business)
Electrical goods (business)
(36) shops
10 (vehicles)
(Inventory from) local suppliers
Import tariffs
Delivery (service)
$75 million (non-current liabilities)
$120 million (non-current assets)
$110 million (current liabilities)
$70 million (current assets) Other appropriate examples can be credited.
2(e)[6]
Explain two objectives a private sector business might have. Which objective is likely to be the most important? Justify your answer. Award up to 2 marks for identification of relevant points. Award up to 2 marks for relevant development of points. Award up to 2 marks for justified decision as to which objective is likely to be the most important. Points might include:
Survival/stay in business [k] to breakeven/ensure costs are covered [an]
Make a profit [k] when revenue exceeds total costs [an]
Growth/expansion [k] as this can help spread risk [an]
Increase sales [k] as this can lead to higher revenue [an] which is necessary to cover costs [an]
Increase market share [k] which could provide an opportunity to control prices/dominate the market [an]
Socially/ethically/environmentally responsible / provide a service (to the community) [k]
Increase returns to shareholders/owners [k] to encourage investment [an]
Increase brand image / reputation / increase brand awareness [k]
Increase customer loyalty [k]
Customer satisfaction [k] Justification might include: One objective is survival [k] to ensure costs are covered [an]. Another objective is making a profit [k] to provide a source of finance [an]. Survival is likely to be the most important objective for private sector business as they may operate in a competitive market [eval.] Without survival, there is no opportunity to make profit in the long term [eval]. 6 This is a general question so there are no marks for application. Analysis could focus on explaining what the objective is or advantages of that objective. Some points can be awarded as [k] or [an] e.g. break-even but only award once.

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