Identify and explain two sources of finance PP could use for its expansion.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2018). The mark or mark type is shown in brackets.

1. [1] Source: Bank loan identified
2. [1] Explanation of Bank loan: repaid in monthly instalments / interest charged / allows a large sum of money to be borrowed over a long period
3. [2] Application mark for Bank loan (contextual reference to market research for new market / expanding and selling in other countries)
4. [1] Source: Issue more shares to family and friends identified
5. [1] Explanation of Issue more shares to family and friends: no interest charged / doesn't need to be repaid / original owners may lose some control
6. [2] Application mark for Issue more shares (contextual reference to PP as private limited company)
7. [1] Source: Issue shares to public by becoming a public limited company identified
8. [1] Explanation of Issue shares to public: no interest paid / not repaid / potential for takeover
9. [2] Application mark for Issue shares to public (contextual reference to PP's size/expansion goals)
10. [1] Source: Debentures identified
11. [1] Explanation of Debentures: fixed interest charged / needs to be repaid after a certain period of time
12. [2] Application mark for Debentures (contextual reference to PP's strong financial position)
13. [1] Source: Hire purchase identified
14. [1] Explanation of Hire purchase: no initial payment required / not owned until final payment made / paid in instalments / interest charged
15. [2] Application mark for Hire purchase (contextual reference to equipment for pottery production)
16. [1] Source: Leasing identified
17. [1] Explanation of Leasing: do not own the equipment / repairs not paid for by PP / maybe more expensive in the long run
18. [2] Application mark for Leasing (contextual reference to equipment for pottery production)
19. [1] Source: Sale of assets identified
20. [1] Explanation of Sale of assets: no repayment needed / may not raise sufficient finance / takes time to sell assets
21. [2] Application mark for Sale of assets (contextual reference to unused factory space/equipment)
22. [1] Source: Retained profit identified
23. [1] Explanation of Retained profit: no need to repay it / no interest to pay / shareholders may not be happy as dividend payment lower
24. [2] Application mark for Retained profit (contextual reference to PP making profits)
25. [1] Locating a factory in country Z (Benefit): Jobs created/Unemployment reduced
26. [1] Locating a factory in country Z (Benefit): Less payments made by the government to support the unemployed / more money available for alternative government spending / higher wages leads to increased spending
27. [1] Locating a factory in country Z (Benefit): Increasing incomes – increased economic growth – leads to increased spending in country Z – higher tax revenue from income tax/improved standard of living
28. [1] Locating a factory in country Z (Benefit): Reduced imports as no need to import PP products – improves B of P and less likely for exchange rate to depreciate as a result
29. [1] Locating a factory in country Z (Benefit): Lower prices from increased competition – improved standard of living for the population of country Z
30. [1] Locating a factory in country Z (Benefit): More competition leads to more choice for consumers
31. [1] Locating a factory in country Z (Drawback): Local businesses have increased competition – may lead to lower demand/jobs lost/close down
32. [1] Locating a factory in country Z (Drawback): Repatriated profit – so less tax revenue for the government in country Z
33. [1] Locating a factory in country Z (Drawback): Pollution/environmental effects – external costs/increased traffic/overcrowded/congestion increases
34. [1] Locating a factory in country Z (Drawback): Depletion of natural resources – possibly lower economic growth in the future
35. [1] Locating a factory in country Z (Drawback): PP might bring in own senior staff and therefore jobs created are low skilled