(a) Refer to Table 1. Calculate for SBC the: (b) Assess whether SBC should change its legal structure to a public limited company.

Mark scheme

Marking points from the official mark scheme (May/June 2021). The mark or mark type is shown in brackets.

1. (a)(i) ROCE = profit / capital employed ×100 (1 mark if no calculation)
2. (a)(i) Profit = 9.5 – 0.5 – 6.2 – 0.3 – 1.1 = 1.4 m (1)
3. (a)(i) 1.4 / 12.1 × 100 = 11.57% (2 marks)
4. (a)(i) OFR e.g. if not all costs deducted from revenue to calculate profit (1)
5. (a)(ii) PM = profit / sales revenue ×100 (1 mark if no calculation)
6. (a)(ii) Profit = 9.5 -0.5 – 6.2 – 0.3 – 1.1 = 1.4 m (1)
7. (a)(ii) PM = 1.4 / 9.5 × 100 = 14.74% (2)
8. (a)(ii) GPM = 3.3 / 9.5 × 100 = 34.7% (1)
9. (a)(ii) OFR for use of profit from 2(a)(i) (2)
10. (a)(iii) Website development will cost $250 000
11. (a)(iii) Gearing = NCL / capital employed × 100 OR NCL / Shareholder equity x 100 (1 mark if no calculation)
12. (a)(iii) NCL = 6.6 + 0.25 = 6.85 (1)
13. (a)(iii) CE = 12.6 + 0.25 = 12.85 (1)
14. (a)(iii) New gearing will be 6.85 / 12.85 × 100 (3)
15. (a)(iii) = 53.31% (4)
16. (a)(iii) Other answers: 6.85 / 12.6 × 100 = 54.4% (3)
17. (a)(iii) 6.6 / 12.6 × 100 = 52.4% (2)
18. (b) Knowledge:
19. (b) Definition of plc
20. (b) Knowledge of factors in decision and method of changing to a plc
21. (b) Additional finance
22. (b) More permanent finance
23. (b) Cost of public share issue
24. (b) Need for a prospectus, underwriting of share issue, legal costs
25. (b) Impact on ownership & control of SBC
26. (b) Knowledge of importance of gearing/reliance on bank loans
27. (b) Banks will consider gearing in lending decisions
28. (b) Interest payment associated with greater debt finance
29. (b) Knowledge of relevance of profit margins and ROCE
30. (b) Profits as a source of finance or potential attraction to investors
31. (b) Application:
32. (b) Comparison of figures from Appendix 1, use of results.
33. (b) ROCE, profit margins
34. (b) Gearing would be 52.53% so on the high side (already 52.38% without new loan)
35. (b) Reference to possible uses of share capital as source of finance for Option 1 or 2
36. (b) Shareholders have had to accept low dividends.
37. (b) Expansion opportunities for SBC that require financing and high cost of land in CBD
38. (b) Options 1 & 2 require significant investment.
39. (b) Analysis:
40. (b) Impact on existing shareholders/family, would there be a control risk?
41. (b) Financial implications dilution of ownership versus extra capital.
42. (b) Other factors developed, e.g. implications of profitability results on possible future returns and desirability of shares.
43. (b) If demand for shares is low, then implication of share price / company value.
44. (b) Evaluation:
45. (b) Balance of evidence - best time?
46. (b) Short versus long term interests?
47. (b) Sateja and her family can convert to a plc to raise finance but retain control by holding more than 50% of shares.
48. (b) Depends on attitude of the family towards retaining control.
49. (b) How important is it to be able to take advantage of the current opportunities in the market?
50. (b) Accuracy of forecast data?
51. (b) Liquidity of SBC?
52. (b) What might happen without conversion to plc?