BGR is a private limited company. It operates 6 cinemas in different towns. Effective internal communication is important for BGR. The Finance Director has been analysing BGR's accounts and an extract is shown in Table 4.1. BGR plans to open another cinema and will need to recruit 10 new employees. The new cinema will cost 8m. The Finance Director has to decide whether BGR should issue new shares or use a bank loan to finance the expansion. Table 4.1 Extract from BGR's Income statement for year ending 2020 (000's) Revenue X Cost of sales 180 Gross profit 720 Expenses Y Profit 400

Mark scheme

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

1. [2] Cost of producing or buying in the goods sold by the business during a period of time
2. [2] Cost of purchasing the goods used to make the products sold
3. [2] Variable cost of making the goods sold
4. [2] Cost per unit x number of output sold
5. [2] Opening inventory + purchases – closing inventory
6. [1] money spent on materials
7. [1] X 900 000 or 900
8. [1] Y 320 000 or 320
9. [1] Job analysis / identify vacancy
10. [1] Job description
11. [1] Person/job specification
12. [1] Advertising (the vacancy)
13. [1] Application forms sent out/received
14. [1] Short listing/screening
15. [1] Interview/testing
16. [1] Selection / job offer / hire
17. [1] To ensure employees / suppliers carry out the instructions correctly / understand what to do [k]
18. [1] to make sure the right thing is done / there is no wastage [an]
19. [1] Speed up decision-making [k] at the new location [app]
20. [1] so able to quickly react to changing customer tastes [an]
21. [1] To ensure customers are given correct information [k]
22. [1] which can help improve customer loyalty [an]
23. [1] Find customer preferences [k]
24. [1] so can use the information to help improve its services / make it more competitive [an]
25. [1] Motivates employees [k]
26. [1] increasing efficiency [an]
27. [1] Permanent source of capital [k]
28. [1] so no need to repay [an]
29. [1] Access to greater amounts of capital [k]
30. [1] as no restriction on number of shares [an]
31. [1] No interest to pay [k]
32. [1] so fixed costs do not increase [an] so can avoid increasing debt [an]
33. [1] Possible loss of control / risk of takeover [k]
34. [1] making it difficult to manage or take decisions [an]
35. [1] Cost/time to arrange [k]
36. [1] so not able to focus on other issues [an]
37. [1] Shareholders might expect dividends [k]
38. [1] Increase debt [k]
39. [1] which can increase gearing ratio [an]
40. [1] Need to repay [k]
41. [1] Must pay interest [k]
42. [1] which increases expenses [an]
43. [1] Have long time to repay [k]
44. [1] allows time to gain extra revenue to meet repayments [an]
45. [1] Can keep profits for future/emergency [k]
46. [1] Can borrow large amount / all the money [k]
47. [1] Issuing new shares give access to large amounts of capital [k] as there is no restriction on the number of shares. [an]
48. [1] Bank loans require interest payments [k] which will increase costs. [an]
49. [1] It can depend on the current level of debt as a bank loan will increase financial risk[eval] so it may be safer to issue shares as a limited company will not be required to repay the funds. [eval]