CAIE A-Level Business AS 5.2.3 Finance Source Factors Questions

Explain one factor that will influence Markus' choice of a source of finance.

Indicative content

AO1 Knowledge and understanding

Knowledge of a factor that may affect the choice of source of finance □:

- Cost of finance

- Flexibility

- Need to retain control

- The use/reason/amount needed

- Level of existing debt/cashflow.

AO2 Application

Limited application □, applies knowledge to Markus/OFD once.

Developed application □ $+\square$ applies knowledge to Markus/OFD twice.

Application of a factor may include:

- OFD is a new business

- OFD will be a private limited company

- Markus will have limited start-up funds

- OFD will operate in a highly competitive market

- Data from Table 1.1

1(b)(ii)

- Answer from Q1b(i) (OFR applies)

- OFD will offer customers one month trade credit

- OFD's suppliers may insist on payment on delivery (immediate payment).

Accept all valid responses.

Exemplar and annotations

A factor would be flexibility □, because OFD needs

Flexibility is a reasonable factor, explained in the $40000 in June but this increases to $114000 by specific context of OFD/Markus by using the data in August 回. Table 1.1.

Markus may want to keep control of OFD, so he

Keeping control is and there are two specific pieces would not want to sell any of the shares of the new of context based on this so two □. private limited company □.

OFD is a new business and Markus has limited

3

Although the appears first, it cannot be awarded start-up funds so the most important factor is how until the has been found. However, there is obvious much debt he already has □. □, so you can go back and award the □.

Markus chose trade credit so that he can have

2

The fact that Markus chose trade credit is irrelevant, inventory which is vital to a new business □. however the use of the source of finance is □. The context of new business linked to this is reasonable, but only one point of application.

How much it costs because the more it costs the

1

Knowledge of a factor. The rest of the answer is not worse his cashflow will get. If the cashflow is poor, he applying it to the context, so ${ }^{\underline{+1+\infty}}$ (Not Answering may build up debts and the business might ultimately Question). fail.

Markus has chosen trade credit, which may mean he

0

Although there is some relevant context, there is no can improve his cashflow in June by reducing the knowledge of a factor, so no marks can be awarded. outgoings by $ 25000. This means that the closing balance will only be ($15000) and mean that he may only need a small overdraft □.