BB Pty Ltd is a private limited company that manufactures carpets. It wishes to expand.

Mark scheme

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

1. [4] (a) Any two factors explained × 2 marks each – Transport routes – likely to be less congested than in town centre, better roads leading to other parts of the country so easier to move the finished carpets Labour - from the surrounding area may find it easier to reach the factory, easier car parking Accessibility by suppliers – suppliers may find it easier to make deliveries especially if they make regular deliveries Land - likely to more land available for expansion Planning rules – likely to be geared towards the needs of an industrial area Cost of site - rent charged, taxes, cost of conversion of the site Power, water Government subsidies and grants Industrial inertia. Any other relevant factor. No marks for availability of raw materials, less pollution or security
2. [4] (b) (i) Any four points × 1 mark each (must cover both current and deposit account) – Needs to pay in receipts and make withdrawals from current account Needs to pay workers from current account Needs to make other payments e.g. to suppliers from current account Needs the deposit account to save any surplus money/so it can earn interest Deposit account may provide instant access to money when needed Deposit account provides a safe means of keeping money. Any other relevant point
3. [2] (ii) Any two points × 1 mark each or one well explained point × 2 marks – When seeking finance for the expansion If a takeover bid/merger was suggested by another company If the company wanted to export its carpets On the progress of its business To discuss a possible relocation of the business When in financial trouble When wanting to open a new bank account When seeing investment advice When wanting advice on insurance. Any other relevant circumstance. N.B. setting up the business = 0 marks.
4. [1] (iii) One mark for (bank) loan/mortgage
5. [3] (c) Any three reasons × 1 mark each and up to 2 marks for a well-developed point – To store them They may need final preparation for sale – packaging/branding They may be awaiting sale They may be awaiting transport to a buyer They may be awaiting export There may be no sale as there may be a glut in the market To protect them from theft/damage/deterioration (2 marks) To display them to potential buyers Maintain production ahead of demand Enables sales direct from warehouse Avoids price fluctuations Allow comment on bonded warehouses. Any other relevant point.
6. [6] (d) Level 2 (4-6 marks) Has discussed whether or not it is better for BB Pty Ltd to be a public limited company and has given a reasoned opinion. (If a candidate has discussed only advantages or disadvantages, award 4 marks max) Changing to a public limited company enables the company to raise capital from many potential investors through the stock exchange and also may make it easier to raise money from its bankers. Shareholders will continue to have the benefits of limited liability. Although ownership of the shares may change, the company is assured of continuity of existence. With opportunities to acquire large amounts of capital, the company can benefit from economies of scale such as bulk buying and the latest technology for the manufacture of carpets. It will be able to take advantage of specialist management and directors from a wide range of expertise. There are, however, some disadvantages to being a public limited company rather than a private limited company. The company may be subject to take-over bids from other companies. Ownership of shares is restricted in a private limited company and ownership of shares cannot be transferred without the consent of the other shareholders. There is also the problem of separation of ownership from management – shareholders interested in short-term profits and not in long-term policies. The company may be so large that there is a loss of personal contact between management and workers and between customers and the company. On the other hand, BB Pty Ltd as a carpet manufacturer could not remain as a small business. It needs capital investment in the latest technology in order to remain competitive. It wishes to expand and so will need to raise significant amounts of capital that only a public limited company could do. Level 1 (1-3 marks) Has commented on BB Pty Ltd becoming a public limited company with/without an opinion. BB Pty Ltd needs large amounts of capital for its business. It can raise this capital through the stock exchange. It will have many directors. It can expand its business. It can use the latest technology. It is better for it to be a public limited company.