Refer to Table 1.2 and lines 41-66.

Mark scheme

Marking points from the official mark scheme (May/June 2023). The mark or mark type is shown in brackets.

1. ROCE = Profit from operations / Capital employed X 100
2. [1] Capital employed = issued shares + reserves + non-current liabilities
3. [2] CE = 1 + 2 + 2 = 5
4. [3] ROCE = 0.2 / 1 + 2 + 2 X 100
5. [4] ROCE = 4%
6. [3] 0.1 / 5 X 100 = 2% [profit for the year rather than operating profit]
7. [3] 0.2 / 3 X 100 = 6.7% [reserves not included in CE]
8. [3] 0.2 / 4 X 100 = 5% [issued shares not included in CE]
9. Definition and/or explanation of terms used: share price, capital employed, current ratio, gearing ratio, elements of income statement, borrowing and reserves.
10. Market research methods and their advantages/disadvantages.
11. The new range in relation to business objectives and resources.
12. Forecasts are not certainties, there is always risk.
13. Borrowing and reserves.
14. Highly seasonal nature of WP sales.
15. Some market research indicates probability of success.
16. Use made of the data in the information.
17. Borrowing and existing cash is sufficient to finance project.
18. Forecast ROCE less than existing ROCE.
19. Gearing ratio rising (30% to 40%)
20. Profit forecast to decrease but still positive.
21. Dividends to shareholders forecast to decrease ($0.15m to $0.05m).
22. Link decision to impact of new government policies.
23. Financial data indicates that the project can be financed as it appears that WP has relatively low gearing APP and may therefore be able to borrow the money required AN
24. The decrease in profit shown in the data suggests that in the short term the investment will not benefit WP as profit is a key business objective AN and this will reduce available finance for other future investments thus indicating that WP should reconsider the investment. L2AN
25. Investment appraisal is not included and this provides a measure of the return that the investment generated which is important profit is the primary objective of business. AN
26. The impact on employees of training required to use new machinery could have an impact on motivation (positive or negative) AN and therefore impact productivity and / or quality of existing output. L2AN
27. The impact on existing customers due to possible disruption to production as new machinery is introduced and workers are trained. AN
28. Financial information is essential as it covers the important factors including financial position of WP.
29. If it can be shown the financial forecasts incorporate accurate market and cost information they are sufficient.
30. The information provides a useful starting point to explore in more detail what looks like a positive addition to the product portfolio.
31. Other information / factors are also essential.
32. Investment appraisal over a longer time period.
33. Information on workface availability and skillsets would be important.
34. Information on how the new range fits into the product portfolio or wider strategic planning would be useful.
35. Entering a new market always entails some un-measurable risk.
36. Critical Path Analysis to help assess impact on existing production and customers.
37. Is there sufficient market research to establish that WP should enter the outdoor play equipment market?
38. Sufficiency of financial information depends on: To what extent would the other director/managers support the introduction of the new range?
39. To what extent have the forecasts taken account of the possible new government policies?
40. To what extent will Rona (the decision maker) rely on the Finance manager's information?
41. Financial information is based on assumptions that may not be accurate, especially as we are not given the source or detail of these.
42. It is very likely the financial forecasts will quickly become outdated as new government policies are implemented in the next six months.
43. The financial data refers to only one year. Forecast data on a longer timescale is also needed.
44. Will the decrease in profits be permanent?