A-LevelBusiness StudiesFinance and accounting9609/33 · May/June 2020 · Q218 Marks

Refer to Appendix 1 and any other information. Calculate the:

(a)(i)return on capital employed for PAC in 2019[3]
(a)(ii)forecast gearing ratio in 2020 assuming the four pizza vans are purchased using a bank loan.[3]
(b)Refer to your answers to 2(a) and any other information. Discuss whether PAC is right to finance the pizza van project using a bank loan.[12]

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Mark scheme

Marking points from the official mark scheme (May/June 2020). The mark or mark type is shown in brackets.

[1] (a)(i) ROCE = Operating profit/capital employed × 100
[3] (a)(i) 2019 5.2 - (1.3 + 1.5 + 0.7 + 1.1)/10 = 0.6/10 × 100 = 6%
[2] (a)(i) Wrong figure, e.g. wrong year 2020 5.3 – (1.5 + 1.7 + 0.8 + 1.1)/10 = 0.2/10 × 100 = 2%
[0] (a)(i) No % sign or incorrect decimal position max 2 marks.
[1] (a)(ii) Gearing = non-current (long term) liabilities/capital employed × 100
[3] (a)(ii) 2020 4.8m + 0.2m (4 × 50,000)/10m + 0.2m = 5m/10.2m = 49%
[0] (a)(ii) No % sign or incorrect decimal position max 2 marks.
[1] (b) Knowledge: Knowledge of different sources of finance – bank loan, leasing, retained profit (if any?), additional finance from family?
[1] (b) Knowledge: Knowledge of importance of gearing / reliance on bank loans
[1] (b) Knowledge: General reasons for favouring particular sources of finance
[1] (b) Knowledge: Depreciation of vehicles is usually fast
[1] (b) Application: Comparison of figures from Appendix 1, use of results
[1] (b) Application: Profit margins 2019 – 0.6/5.2 × 100 = 11.54% 2020 0.2/5.3 × 100 = 3.77%
[1] (b) Application: Gross profit margins so 2019 75% and 2020 71.7%
[1] (b) Application: Gio’s concerns would another bank loan and repayments put further pressure on falling profit margins?
[1] (b) Application: Gearing would be nearly 50% (highly geared)
[1] (b) Analysis: Impact on shareholders/family
[1] (b) Analysis: Financial implications, repayments versus alternatives, e.g. leasing
[1] (b) Analysis: Other factors developed, e.g. cost of depreciation of vans versus length of borrowing period
[1] (b) Analysis: If pizza van project has potential to improve falling margins then maybe worth the risk of taking on extra borrowing
[1] (b) Evaluation: Balance of evidence - best source?
[1] (b) Evaluation: Is leasing an option?
[1] (b) Evaluation: Accuracy of forecast data?
[1] (b) Evaluation: Liquidity of PAC?
[1] (b) Evaluation: What might happen without the pizza van investment?