Penny wishes to open a sports shop. Two empty shops are available as shown in Fig. 3. SHOP A In busy town centre Many office workers at lunchtime Close to health clubs and a gym No other sports shop nearby Selling price $400000 Equipment and stock $50000 SHOP B In out-of-town shopping centre Good car parking and road access Close to sports centre Another sports shop in shopping centre Three-year lease costing $100000 plus conversion costs of $30000 Equipment and stock $40000 [Figure 3] Use Fig. 3 to help you to answer the following questions.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2014). The mark or mark type is shown in brackets.

1. [6] Level 2 (4-6 marks) Has shown with reasons which site Penny should choose and has shown why she should reject the other shop. (If a reasoned response is given on one shop, award 4 marks max) Penny should choose shop B. It is in a shopping centre where many people are likely to shop. The shopping centre has good access and good car parking. The shopping centre is close to the sports centre so people visiting the sports centre may come to the shop to buy what they need especially if Penny undertakes some advertising in the sports centre. Although there is competition from another sports shop in the shopping centre, this could be to Penny's advantage as people may want to compare what is offered and at what price in more than one shop before making a decision. The conversion costs of the shop in shop B are cheaper than those of shop A. Penny will not be purchasing the shop but leasing it. As setting up a business is a risk, perhaps this is an advantage as Penny will not have to commit so much capital and could, if necessary, sell on the lease for another business. Although there is no competition and plenty of potential customers at lunchtime, shop A is rejected because there is no guarantee that there will many customers at other times of the day, the conversion costs are greater and buying the site will prove very costly for Penny. Level 1 (1-3 marks) Has commented on which shop Penny should choose and may / may not have commented on the other shop. Penny should choose shop A. She will own the site. She could sell it if necessary. It is in a busy town centre. It is close to a health club and gym. People visiting the health club may want sports equipment. There is no competition. Penny should do well.
2. [4] Any four points × 1 mark each and up to 2 marks for a well-developed point – • Penny will have unlimited liability so she is liable for all the debts of the business and her personal assets may be at risk • Penny will have to work long hours and it may be difficult to cover for illness • Penny may suffer from lack of capital and difficulties with cash flow and the bank may regard her as a poor risk • Penny will have no one with whom to discuss her business decisions and so may make the wrong decisions • Penny may be unable to compete against chains of sports shops in terms of price and so customers may go elsewhere. Any other relevant point.
3. [4] Any two reasons × 2 marks each • To provide protection against financial loss; • Because Penny and her business may be at risk e.g. risk of fire • Because it is compulsory by law e.g. employer's liability, third party motor insurance • To give Penny confidence to proceed with the business with the back-up of compensation if a loss occurs • Because she is a sole trader with unlimited liability. (2 marks max for list of insurance risks) Any other relevant point.
4. [1] One mark for proposal form / application form.
5. [2] Any two reasons × 1 mark each or one well explained reason × 2 marks • May get a better deal on a specific type of insurance especially if it is straightforward • May save time as can talk to someone from the insurance company direct • Insurance broker may charge commission to the applicant as well as be paid commission by the insurance company • Insurance broker may not give the impartial advice that is expected but recommend the insurance company that pays the highest commission. Any other relevant point.
6. [3] Any one source of finance × 1 mark and one mark each for two reasons • Bank loan - fixed rate of interest, may be able to negotiate the repayment time • Mortgage - long-term borrowing, linked to purchase of property e.g. Shop A • Borrowing from friends and relatives – may have the funds necessary, may not charge interest or a very low rate of interest • Own savings – interest, readily available • Redundancy payments no interest, readily available, no repayment • Take a partner – may be sleeping partner who invests money for share in profits. Any other suitable source of finance.