Discuss the view that cash flow forecasts for a new international airport may be of limited use to its senior managers.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2017). The mark or mark type is shown in brackets.

1. [20] Level 5: Effective evaluation of the view that cash flow forecasts may be of limited use to senior managers in a newly operating airport. (17-20 marks)
2. Level 4: Good analysis and limited evaluation of the view that cash flow forecasts may be of limited use to senior managers in a newly operating airport. (13-16 marks)
3. Level 3: Analysis of the view that cash flow forecasts may be of limited use to senior managers in a newly operating airport. (11-12 marks)
4. Level 2: Limited analysis with application of the view that cash flow forecasts may be of limited use to senior managers. (5-10 marks)
5. Level 1: Understanding of cash flow forecasts. (1-4 marks)
6. Level 0: No creditable content (0 marks)
7. Answers may include:
8. Cash flow forecasting aims to estimate cash inflows and outflows to allow effective financial management of a business.
9. The airport is a major capital investment project with significant operational expenditure.
10. The cash flow forecasts will contain estimates of inflows and outflows.
11. Inflows may include:
12. ∞ Capital injection by investors.
13. ∞ Fees paid by airlines for use of the airport.
14. ∞ Income from retail outlets in the airport.
15. Outflows may include:
16. ∞ Interest payments on any loan capital.
17. ∞ Wages and salaries for staff running the airport.
18. ∞ Payment for security of the facility.
19. CFF are important for financial planning and management, but CFF have limitations; factors internal and external to the business can blow CFF off course.
20. Business uncertainty may be especially important in this situation: domestic or international economic recession may affect the flow of business at the airport.
21. the price of oil may be volatile and critically affect forecasting.
22. The cash flow estimating may be inadequate; important issues missed or underestimated; wrong assumptions may have been made about, say, the amount of retail income expected.
23. This is a question on the uses and limitations of cash flow forecasting in a specific context. Good answers will address the view stated in the question and provide evidence and analysis to decide if the view expressed is realistic or perhaps a little exaggerated. How significant might be business uncertainty? How realistic are the cash flow forecasts?