Refer to Appendix 1. Calculate the:

Mark scheme

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

1. [4] (a)(i) Correct answer with or without units. Working not required. Allow accurate rounding. 59.41% / 146.34%
2. [3] (a)(i) Statement of correct calculation of gearing 6 / 10.1 x 100 / 6 / 4.1 × 100 / 6 / 7 = 85.7% / 6 / 9.1 = 65.93% / 6 / 10.1 = 0.5941
3. [2] (a)(i) Calculation of capital employed 4.1 + 6 = $10.1m
4. [1] (a)(i) Calculation of shareholder equity 1 + 3.1 = $4.1m / OR Correct formula
5. [0] (a)(i) No creditable content
6. [Relevant formulae] (a)(i) Non-current liabilities / (shareholder equity + NCL) × 100 (1 mark if no relevant calculation)
7. [Relevant formulae] (a)(i) Long term liabilities / capital employed × 100 (1 mark if no relevant calculation)
8. [4] (a)(ii) Correct answer with or without units. Working not required. Allow accurate rounding. 6.06%
9. [3] (a)(ii) Statement of correct calculation of profit margin. 0.8 / 13.2 × 100
10. [3] (a)(ii) OR OFR based on error in calculating profit. Working not required. 3.2 / 13.2 x 100 = 24.24% / 10.8 / 13.2 × 100 = 81.82%
11. [2] (a)(ii) Calculation of profit 13.2 – 10 – 2.4 = 0.8
12. [1] (a)(ii) Incorrect calculation of profit with or without units $3.2m OR $10.8m / OR Correct formula
13. [0] (a)(ii) No creditable content
14. [Relevant formula] (a)(ii) Profit margin = (profit for the year / sales revenue) × 100 (1 if no relevant calculation)
15. [1] (a)(iii) AT = liquid assets / current liabilities
16. [1] (a)(iii) OR AT = (current assets – inventory) / current liabilities (1 if no relevant calculation)
17. [1] (a)(iii) AT = 0.6 / 1.3 (1)
18. [2] (a)(iii) AT = 0.46 OR 0.46:1 OR 1:2.17 (2)
19. [1] (a)(iii) 6:13 (1) OR 0.6:1.3 (1)
20. [Knowledge] (b) This is a takeover. Understanding of factors influencing decision: Objectives of current owners of the business. Control of business decision making. Benefit of support offered by a larger organisation. Need for finance in period of business growth.
21. [Application] (b) Use of results to 2(a) / case study information. OFR
22. [Application] (b) Gearing is high at 59.41%. Most of finance is from bank loans.
23. [Application] (b) Acid test of 0.46 may indicate potential liquidity issues.
24. [Application] (b) Current ratio is low at 1.08.
25. [Application] (b) Working capital only $100 000.
26. [Application] (b) Profit margin is 6.06%. Is that sufficient for financing growth?
27. [Application] (b) BFB has borrowed substantial funds to finance growth.
28. [Application] (b) Accepting the offer would mean that Aela and John no longer control the business.
29. [Application] (b) Aela and John haven't taken a dividend yet.
30. [Application] (b) TT will support BFB's plans for growth.
31. [Application] (b) $7m for 55% values the business at $12.73m. This is much greater than the value of net assets at $4.1m or capital employed of $10.1m.
32. [Analysis] (b) Profits insufficient to finance growth. Therefore, borrowing is increasing and this is increasing risk in the business.
33. [Analysis] (b) Injection of finance into BFB would give greater stability to the business in time of economic uncertainty.
34. [Analysis] (b) Support of TT – a much larger business could help BFB develop its product range and increase its market share. Economies of scale may result.
35. [Analysis] (b) Move into cycling accessories or mountain cycles is risky and therefore need to sure up the finances of the business.
36. [Analysis] (b) Support given to growth would generate profits and enable Aela and John to take a dividend from the business.
37. [Evaluation] (b) Supported recommendation.
38. [Evaluation] (b) Importance of control to Aela and John relative to pursuit of growth of the business.
39. [Evaluation] (b) Elements that the evaluation/judgement might depend on: Is $7m an appropriate valuation of a 55% stake? Future capital needs of BFB Possibility of selling less than 50% of shares so that Aela and John retain control. How TT is financing the takeover? Debt financing could leave BFB even more indebted. What is TT's underlying motive?
40. [Evaluation] (b) Significance of other factors that may also influence decision Long-term role of Aela and John may be threatened. Are other companies interested in investing in BFB Possible culture class