EE plc is a national wholesaler that imports large quantities of electrical goods from other countries. It plans to build a new head office. EE will require a large amount of finance for the build.

Mark scheme

Marking points from the official mark scheme (May/June 2020). The mark or mark type is shown in brackets.

1. [2] A business that buys from producers in large quantities (1) and sells in smaller quantities/breaks bulk (1) to retailers (1)
2. [2] Name/address of wholesaler
3. [2] Name/address of retailer
4. [2] Invoice number
5. [2] Date of invoice
6. [2] Retailer's order number
7. [2] Description/cost of goods/services provided
8. [2] Supply date of when goods/services were provided
9. [2] Total value of invoice
10. [2] How to pay the invoice
11. [4] Retailers cannot afford to buy in large quantities (1) so they take advantage of the wholesaler breaking bulk (1)
12. [4] Retailers cannot afford to pay storage costs/have no need for a warehouse (1) these are services provided by a wholesaler (1)
13. [4] Retailers can buy stock when they need it (1) improve cash flow (1)
14. [4] Retailers can reduce advertising costs (1) wholesalers may advertise/promote products (1) thus widening the market for retailers (1)
15. [4] Retailers receive information/advice from wholesalers (1) on market trends (1)
16. [3] Yes - They have large quantities of goods stored (1) gives them another market to sell too (1) will not have to rely on retailers for all their sales (1)
17. [3] No - They would not want to compete with their own customers, the retailers (1) who then might decide to use the services of another wholesaler (1) thereby losing sales (1)
18. [8] New share issue: A new share issue is permanent capital that does not require repayment and increases EE's net worth, but the process can be expensive.
19. [8] EE can invite existing shareholders to buy more shares which could save money advertising.
20. [8] EE do not have to pay a dividend if it is short of cash/if it is failing to make a profit, but shareholders will not invest if they are not getting a good return for their money.
21. [8] Share issue will increase the number of owners of EE and this can affect the running of EE plc so the directors may not be able to push through their plans for a new head office.
22. [8] Retained earnings: Readily available with no application/documentation/cost.
23. [8] No dividends have to be paid
24. [8] No loss of ownership
25. [8] Retained earnings might be insufficient for this expansion.
26. [8] Evaluation: There is the problem of opportunity cost, e.g. EE cannot afford to improve other parts of the business if the head office is built.
27. [8] It will depend on what is financially efficient for EE and the effects on control and ownership of the company.
28. [8] Retained profits is a guaranteed amount of money, but there is no guarantee that all EE plc's shares will be sold.
29. [8] Depending on how much profit the business has, and how much the shares might be worth, it might be best for EE to consider a mixture of both sources of finance.