1

1 DNG provides electricity to 16 million customers. It is a limited company which means DNG’s shareholders
benefit from limited liability. DNG is planning to stop using coal to produce its electricity. Pressure groups
had an influence on this decision. The Managing Director knows there will be an opportunity cost to making
this change. She is considering the best way to communicate this important information to DNG’s 6500
employees.

Outline how having limited liability might benefit DNG’s shareholders.

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[Total: 4]
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2 Following the end of a recession in country X, Beena wants to start up a hairdressing business. One option
is to purchase a franchise from an established hairdressing business. Beena has $800 in savings and knows
having enough working capital will be important for her business. She plans to use market research to help
her decision-making. Beena knows there are many ways to segment a market.

Explain two possible advantages to Beena of buying a franchise.

Advantage 1: ............................................................................................................................................

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Explanation: ............................................................................................................................................

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Advantage 2: ............................................................................................................................................

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Explanation: ............................................................................................................................................

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[Total: 6]
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3 Tom wants to leave his job to become an entrepreneur. He and his sister plan to start a window cleaning
business. Tom has been told that new businesses are at a greater risk of failure than established businesses.
Tom has to decide whether a partnership is a suitable form of business organisation for the new business. He
has calculated the business will need $700 as start-up capital. Tom knows that every decision he makes will
have an opportunity cost.

Do you think a partnership is the best form of business organisation for a new business? Justify your answer.

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[Total: 6]
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4 VCG manufactures high-quality briefcases and travel bags. VCG has 50 skilled production workers in its
factory. VCG is planning to expand by building a second factory. Different locations are being considered.
The Managing Director is reviewing VCG’s financial statements. An extract is shown in the table below.
Both internal and external stakeholder groups of VCG are interested in this information.

Extract from VCG’s 2021 financial statements ($)

Revenue 2 000 000

Current assets 300 000

Current liabilities 250 000

Shareholders’ equity (funds) 800 000

Identify two financial statements a public limited company is legally required to publish each year.

Financial statement 1: ..............................................................................................................................

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Financial statement 2: ..............................................................................................................................

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[Total: 2]

5 Define ‘public limited company’.

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[Total: 2]
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6 TJM is a private limited company. It is a food retailer and has 450 shops. In 2021 TJM’s revenue increased
by $500 million. The Finance Director is analysing TJM’s financial statements. An extract is shown in table
below. The directors are planning to expand TJM by opening 20 new shops. TJM will have to carry out a
recruitment and selection process for 400 new employees.

Extract from TJM’s financial statements for 2021 ($m)

Non-current assets 400

Current assets 300

Current liabilities 240

Profit for the year 200

Outline two advantages of TJM being a private limited company.

Advantage 1: ............................................................................................................................................

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Advantage 2: ............................................................................................................................................

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[Total: 4]
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7 WTB is a private limited company. It manufactures breakfast cereals. WTB has 600 production workers in
its factory. Many of its employees are part-time. All employees receive training and managers use delegation.
The Human Resources Director is interested in using motivational theories to help improve employee
motivation. The directors plan to expand the business and are considering whether to convert WTB into a
public limited company.

Do you think a public limited company is a better form of business organisation for a growing business than
a private limited company? Justify your answer.

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[Total: 6]
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8 BGR is a private limited company. It operates 6 cinemas in different towns. Effective internal communication
is important for BGR. The Finance Director has been analysing BGR’s accounts and an extract is shown in
the table below. BGR plans to open another cinema and will need to recruit 10 new employees. The new
cinema will cost $8m. The Finance Director has to decide whether BGR should issue new shares or use a
bank loan to finance the expansion.

Extract from BGR’s Income statement for year ending 2020 ($000’s)

Revenue X

Cost of sales 180

Gross profit 720

Expenses Y

Profit 400

Do you think issuing new shares is a better way for a limited company to finance expansion than using a
bank loan? Justify your answer.

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[Total: 6]
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9 Identify two features of a public limited company.

Feature 1: .................................................................................................................................................

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Feature 2: .................................................................................................................................................

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[Total: 2]

10 Identify two features of a sole trader.

Feature 1: .................................................................................................................................................

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Feature 2: .................................................................................................................................................

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[Total: 2]
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11 The economy of country C is experiencing economic growth. Based on secondary market research data,
Samuel started a plumbing business. His business installs and repairs bathroom equipment. Samuel operates
as a sole trader. He used all his $500 savings to buy the tools needed. Samuel had to decide on a suitable
pricing method to use. He thinks that providing a good quality service could help his business to increase
added value.

Explain two possible disadvantages to Samuel of operating as a sole trader business.

Disadvantage 1: .......................................................................................................................................

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Explanation: ............................................................................................................................................

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Disadvantage 2: .......................................................................................................................................

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Explanation: ............................................................................................................................................

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[Total: 6]
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12 Nadia started her successful hairdressing business 4 years ago. Maintaining quality has always been important
to Nadia. She said: ‘I started with no experience of business plans, recruitment, cash flow or profit. I did not
understand how economic issues such as inflation could affect a business. Now I have 5 hairdressing shops
and 20 employees. Last year I made a profit of $100000.’Nadia is planning to expand her business. One way
she could do this is by selling franchises.

Outline one advantage and one disadvantage to Nadia’s business of selling franchises toexpand.

Advantage:................................................................................................................................................

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Disadvantage:...........................................................................................................................................

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[Total: 4]
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13 DCN is a large chemical company. It has 8 000 employees across its 3 factories. DCN has agreed to set up
a joint venture with a glass making business to develop a new type of environmentally friendly packaging.
DCNs Managing Director said: There are disadvantages to a joint venture. The companies have different
leadership styles and business objectives. We will need to look at ways to overcome possible communication
barriers.

Explain two possible advantages to DCN of setting up a joint venture with the other business.

Advantage 1:.............................................................................................................................................

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Explanation:.............................................................................................................................................

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Advantage 2:.............................................................................................................................................

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Explanation:.............................................................................................................................................

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[Total: 6]

14 Define ‘partnership’.

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[Total: 2]
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15 Pamela is a sole trader. She started her successful photography business 30 years ago. She specialises in
taking pictures of people and places for use in posters, calendars and fashion magazines. It is a niche market.
Pamela uses cost-plus pricing as part of her marketing mix. Offering a high quality service is important to
Pamela and her 2 employees.

Explain two advantages to Pamela of operating as a sole trader.

Advantage 1:.............................................................................................................................................

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Explanation:.............................................................................................................................................

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Advantage 2:.............................................................................................................................................

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Explanation:.............................................................................................................................................

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[Total: 6]

16 Define ‘limited liability’.

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[Total: 2]

17 Define ‘sole trader’.

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[Total: 2]

18 Lola and Raul are in a business partnership. They make a range of hand-printed products including t-shirts,
bags and posters using job production. Most of Lola and Raul’s customers are tourists. Lola designs and
prints all the products at the back of a small shop. Raul is responsible for sales and finance. Production is
slow and it is difficult for Lola to keep up with demand. Raul wants to increase output. One way of doing
this is to introduce some machinery into the process. Raul also wants to develop a website.

Explain one advantage and one disadvantage to Lola and Raul of being in a business partnership.

Advantage: ...............................................................................................................................................

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Explanation: ............................................................................................................................................

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Disadvantage: ..........................................................................................................................................

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Explanation: ............................................................................................................................................

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[Total: 6]
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19 DSY is a private limited company. It produces washing machines and cleaning equipment. The Managing
Director wants DSY to expand into a different market. He plans to spend $2bn on developing electric cars.
There is a lot of competition in the electric car market. This market is growing rapidly. A leading pressure
group has identified the environmental problems of non-electric cars. The Managing Director knows that
important decisions about the method of production and the new car’s brand image still have to be made.

Outline two advantages to DSY of being a private limited company.

Advantage 1: ............................................................................................................................................

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Advantage 2: ............................................................................................................................................

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[Total: 4]

20 State two types of business organisation.

Type 1:......................................................................................................................................................

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Type 2:......................................................................................................................................................

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[Total: 2]
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21 BMT is a business partnership owned by 2 brothers. The brothers received government support when they
started BMT 6 years ago. BMT now has 30 employees who make high quality watches. The business tries
to achieve lean production. Demand has increased each year and in 2019 BMT sold 8000 watches. BMT
makes some parts for watches and all the other parts are imported. BMT had to consider a number of factors,
including exchange rates, when deciding whether to import parts for watches.

Outline two disadvantages of BMT being a business partnership.

Disadvantage 1:........................................................................................................................................

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Disadvantage 2:........................................................................................................................................

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[Total: 4]
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22 Gomez is a sole trader. He provides painting and decorating services to business customers. His business
does not benefit from any economies of scale because it is small. Gomez has to pay his suppliers within 1
month. However, he gives customers 3 months to pay. Gomez uses an old van he has borrowed from his
father to travel to his customers’ offices and shops. As the van often breaks down, Gomez is thinking of
buying a new van. A cash-flow forecast for the next 3 months is shown in the table below.

Explain one advantage and one disadvantage to Gomez of being a sole trader.

Advantage:................................................................................................................................................

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Explanation:.............................................................................................................................................

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Disadvantage:...........................................................................................................................................

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Explanation:.............................................................................................................................................

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[Total: 6]
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23 Do you think selling franchises is a better way for a retail business to expand than opening more of its own
shops? Justify your answer.

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[Total: 6]