Cambridge IGCSE Business Studies 0450 — 2002 Oct/Nov Paper 4 · Variant 1

This question paper consists of 11 printed pages, 2 blank pages and 3 lined pages. SP (SJF2141) S10536/5 © CIE 2002 [Turn over International General Certificate of Secondary Education CAMBRIDGE INTERNATIONAL EXAMINATIONS BUSINESS STUDIES 0450/4 PAPER 4 Alternative to Coursework OCTOBER/NOVEMBER SESSION 2002 1 hour 45 minutes Candidates answer on the question paper. Additional materials: Compass Electronic calculator Graph Paper Pencils Protractor Ruler TIME 1 hour 45 minutes INSTRUCTIONS TO CANDIDATES Write your name, Centre number and candidate number in the spaces at the top of this page and on any separate answer paper used. Answer all questions. Write your answers in the spaces provided on the question paper. You may use the graph paper provided for the drawing of graphs, pie charts, etc. in answer to any of the questions. Write your name, Centre number, candidate number and the number of the question at the head of the graph paper. At the end of the examination, fasten any separate answer paper and graph paper (if used) securely to the question paper. INFORMATION FOR CANDIDATES The number of marks is given in brackets [ ] at the end of each question or part question. The business described in the case study is entirely fictitious. Pages 3 to 5 contain information for your use. These pages may be detached for easy reference. You do not need to return these pages with the question paper. You are advised to spend at least 45 minutes in preparing and writing the report required in Section B. Candidate Centre Number Number Candidate Name FOR EXAMINER’S USE 1 2 3 TOTAL www.XtremePapers.com

3 0450/4 O/N/02 [Turn over D & V Limited: A finance problem D & V Limited manufactures wooden furniture. It has been in business for 15 years. The furniture it produces is for the export market. D & V Limited sells furniture to the USA and its manufacturing factory is based in a low wage country. The style of the furniture is very modern and is sold at a high price compared to other types of furniture. D & V Limited has seen sales rise over the last 15 years. The company is now going to sell furniture into Europe as part of an expansion programme. It is going to build another factory in a European country. It has to decide how to finance building the new factory, all the equipment it will need and the extra stocks of raw materials. The Directors of D & V Limited have asked you to look at the problem and write a report to the Board of Directors recommending a solution.

4 0450/4 O/N/02 Fig. 1 Fig. 2 Government Advertisement Attention all manufacturing businesses! Government loans are available for foreign businesses willing to locate in our European country. The government will support the location decision with very low interest loans and advice. • Government loans available for up to 100% of the equipment/machinery costs • Company must stay in the country for 5 years • 75% of the workforce must be local people • Government interest rates are fixed So apply today to see if you qualify for a loan! Memorandum To: Production Manager and Finance Manager From: Managing Director Date: 25 September 2002 Subject: Production methods to be used at the new factory We need about $10m to build the new factory in Europe. The amount of money we need for machinery will depend on the production method we choose. We currently use labour intensive methods. If we continue to use these in the new factory the machinery costs will be $2m. If we decide to use capital intensive methods, where we use an automated production line, then the cost of the machinery will be about $6m. However, we would need to change the design and advertising of the furniture as it would no longer be hand made. The labour costs in Europe are high but the workers are very skilled. Also the Health and Safety laws are very tough. Perhaps we also need to consider changing to a plc (public limited company) in order to raise the necessary finance, but what would be the disadvantages of this? What do you think? Please investigate these points and advise me on what you suggest.

5 0450/4 O/N/02 [Turn over Balance sheet for D & V Limited at 30 September 2002 (in $’000’s) Fixed assets 32000 Current assets Stocks 5000 Debtors 9000 Cash 1000 15000 Less Current liabilities Creditors 6000 Bank overdraft 0 6000 Working capital 9000 Net assets 41000 Financed by: Shareholders’ funds 21000 Long term bank loan 20000 Capital employed 41000 Fig. 3 Daily News 12 September 2002 Banks announce new finance scheme Just as interest rates are about to rise, banks today announced a new finance scheme for businesses. The scheme allows a business to use the latest equipment and rent it over 5 years. The equipment never belongs to the business. However, after 5 years it can choose to obtain new equipment and scrap the old equipment. This allows you to always be up to date. This scheme is an alternative to buying equipment for cash. Fig. 4

7 0450/4 O/N/02 [Turn over Section A 1 (a) State two differences between a private limited company and a public limited company. … … … … [2] (b) Explain three possible reasons why D & V Limited want to build a factory in Europe rather than expand their existing factory. … … … … … … … … … … … … [6] For Examiner’s Use

0450/4 O/N/02 (c) D & V Limited need to decide on the production method for the new factory. State and explain two advantages of using capital-intensive methods of production. … … … … … … … … … … … … … … … … [8] (d) D & V Limited must consider the alternative forms of finance to use for this expansion. State one possible source of finance for: (i) the machinery; … (ii) the factory building; … (iii) the stocks of raw materials. … [3] For Examiner’s Use 8

9 0450/4 O/N/02 (e) Do you think the business should use the same type of finance for all three purposes? Explain your answer. … … … … … … … … … … … … [6] For Examiner’s Use [Turn over

10 0450/4 O/N/02 2 (a) Using the information in Fig. 3, draw a bar chart of the shareholders’ funds and long term bank loan of the business. [5] (b) (i) Using the information in Fig. 3, calculate the current ratio. Explain what the current ratio shows. … … … … … … … … [4] For Examiner’s Use

11 0450/4 O/N/02 [Turn over (ii) How might the Bank Manager use the information in the balance sheet (Fig. 3) in making a decision as to whether to give D & V Limited a loan to build their new factory? … … … … … … … … … … … … [6] (c) Before building the new factory, D & V Limited want to assess the size of the market for its style of furniture in Europe. (i) State two sources of secondary market research it could use. … … … [2] (ii) State two types of primary market research it could carry out. … … … [2] For Examiner’s Use

12 0450/4 O/N/02 (iii) Describe how it could carry out one of these types of primary market research. … … … … … … … … … … … … [6] For Examiner’s Use

13 0450/4 O/N/02 Section B 3 Using all of the information available to you in this paper, write a report to the Board of Directors of D & V Limited, advising them on a possible solution to the problem of how to finance the expansion in Europe. Your report should include: • a brief summary of the problem; • the advantages and disadvantages of different ways of financing: (i) the factory building, (ii) the equipment/machinery for the factory, (iii) the stocks of raw materials; • a conclusion comparing the different ways of solving the problem; • your recommendation of the best solution to the problem, based upon your conclusion; • reference to relevant business studies theory as and where appropriate. Marks will be awarded for using the correct format for a report. Write your report on the pages which follow. You may ask for additional paper if you need this to complete the report. [50]

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CAMBRIDGE INTERNATIONAL EXAMINATIONS November 2002 INTERNATIONAL GCSE UNIVERSITY of CAMBRIDGE Local Examinations Syndicate

Page 1 of 3 Mark Scheme Syllabus | Paper IGCSE Examinations - November 2002 0450 4 Qi (a) 1 mark for each difference stated. Eg.- Number of shares - Name Ltd & ple . - Ltd cannot sell shares to the public. - Publish accounts Total = 2 marks (b) 1 mark for each reason with an additional mark for expansion Eg. - new purpose built factory (efficient layout to new site) - nearer to new market (cheaper transport costs) - no room on existing site (restricted space to introduce new equipment) - skilled labour available in Europe (to use new equipment so no training required) . (3 x 2 marks) Total = 6 marks (c) Level 1 — state advantage of capital-intensive methods of Production 1 mark Eg. - more efficient - lower costs - less labour Level 2 — Explain why it is an advantage 2-4 marks Eg. It is more efficient because more of the product can be produced at a faster rate (2 marks) (2.x 4 marks) Total = 8 marks (d) 1 mark for each suitable source of finance (i) machinery — e.g. lease, bank loan, rent, (ii) _ factory building — e.g. mortgage, bank loan, sell shares (iii) stocks of raw materials — e.g. overdraft, trade credit (3 x 1 mark) Total = 3 marks (e) Level 1— simple statements giving reasons why they should either use the same finance or different sources. Up to 3 marks Level 2 — developed argument giving reasons why they should use the same or different sources. 4-6 marks Total = 6 marks

Page 2 of 3 Mark Scheme Syllabus | Paper IGCSE Examinations - November 2002 0450 4 Q2 (a) 6) @ ii) OW Gi) (ii) Chart -Title - 1 Mark Axes labeled - 2 Marks Accurately drawn - 2 Marks (deduct 1 mark for each error - $7000 missing is an error) Total = 5 Marks Current ratio — 15000:6000 2.5:1 2 marks correct answer. Correct formula but incorrect answer - 1 mark 2 marks for explaining what the ratio shows e.g. liquidity of the business, if they can pay their short-term debts. (2 +2) Total = 4 marks Level 1 — simple statements up to 3 marks Eg. - To see the value of the company’s assets - To see what the company owes - To see what loans it already has. Level 2.— explained the statements 4-6 marks Eg. — If the company already has several loans then the Bank Manager might be reluctant to lend them any more money as they might find it difficult to pay it back. (4) Total = 6 marks 1 mark for each source - newspapers - government reports - market research agency reports - industry magazines - company sales reports Total = 2 marks 1 mark for each source - questionnaires - interviews - consumer panels - experiment Total = 2 marks Up to 6 marks for explaining, in detail, how a stated method of primary research might be carried out. (1 x 6marks) Total = 6 marks

Page 3 of 3 I Mark Scheme Syllabus | Paper Q3 Report IGCSE Examinations - November 2002 0450 4 6 marks for report format - Title 4 marks 24 marks 6 marks 10 marks - Terms of Reference/To: From: - Date - Introduction - Method/Procedure - Results/Findings - Conclusion - Recommendations for the introduction outlining the problem. - what methods of production should the company use? - the business is expanding and it needs to decide how it will finance this for discussing the advantages and disadvantages of financing (i) the factory building (ii). the machinery (iii) the stocks of raw materials (8 marks for each OR these may be transferred for a good answer to a particular source of finance) for the conclusion 1-3 marks for simple answer. 4 - 6 marks for weighing up the pro’s and con’s of the alternative courses of action. for the recommendations 1-3 marks if simple response “He should change into a public limited company” 4-7 marks if they have developed their answer into a clear strategy of which forms of finance to use. 8-10 marks for a full well explained answer justified using Business Studies Terminology. It must be clear why this type of finance would be the most suitable for D & V Limited. Do not reward a list of strategies - up to 3 marks maximum if no explanation is given. Total = 50 Marks