Practise Edexcel Business questions on decision trees, investment appraisal and quantitative techniques, using calculated outcomes to support strategic choices.
Extract A British Airways: a cash cow British Airways (B A) is the second largest airline in the UK and is part of a larger group of airlines. BA merged with Iberia in 2011 to create International Consolidated Airlines Group (IAG), which has since taken over Aer Lingus, as well as Vueling and Level, two low-cost airlines.
Financially, IAG outperforms Europe's other big airlines. BA is the main reason for this. Its return on capital has grown and it provides the largest share of IAG's operating profits.
Extract B Selected data for an Airbus A350-1000 aircraft
Extract C IAG buys Air Europa for €1bn IAG is spending €1bn to buy Air Europa, another Spanish airline. Air Europa serves 69 destinations. Air Europa is the third largest Spanish airline after Iberia and Vueling - both of which are already owned by IAG.
In 2018, Air Europa made an operating profit of €100m. It had a revenue of €2.1bn from 11.8 million passengers. It serves many niche destinations in South America including Paraguay, Colombia and Iguazú on the border of Argentina and Brazil.
Extract D Angry passengers as tens of thousands affected by systems failure In August 2019, BA had many angry passengers as more than 500 flights were cancelled or delayed as a result of an IT systems failure. It affected the travel plans of tens of thousands of people with holiday and business plans travelling from London's Heathrow, Gatwick and City airports. This was not the first time BA has had IT failures.
In 2017, 75,000 passengers were stranded around the world when BA was forced to cancel more than 700 flights over three days due to IT systems failures. A data breach in 2018 affected 400,000 customers and led to a fine of £183m. BA claimed it regularly carries out detailed risk assessments of its IT systems and IT infrastructure. It is dependent on IT systems for many of its key business processes.
Extract E BA to offset domestic flight emissions from 2020 BA will offset all domestic flight emissions from 2020, after its owner IAG became the first airline group to commit to net zero-carbon flying by 2050. IAG is responsible for about 3% of global aviation's emissions. Offsetting allows businesses to invest in environmental projects to balance out their own carbon footprints.
Chief executive of IAG, Willie Walsh, said that the company would reach the net zero-carbon target through offsetting but it already has a strong environmental policy that significantly reduces its environmental footprint by recycling and cutting waste from aircrafts.
Walsh said B A is replacing older, less fuel-efficient aircraft. He said the new Airbus A350-1000, which has just entered service on the transatlantic route to Toronto, would typically use 43 instead of 70 tonnes of jet fuel to carry a similar number of passengers.
Extract B Selected data for an Airbus A350-1000 aircraft
Using Extract B, calculate the simple payback period for an Airbus A350-1000 aircraft. You are advised to show your working.
Extract A Bramwell Brown: weather clocks Bramwell Brown's weather clocks have been putting wonder and fascination on walls all over the world. These hand-assembled weather clocks are unique. They tell the time and they forecast the weather from a barometric sensor inside the clock. The little mechanical clouds in the clock face move to show one of five forecasts, clouding over when it is going to rain and a sun appearing when the weather is improving. Brother and sister Rob and Sarah Bramwell started Bramwell Brown. They trace their love of curious mechanical objects back to childhood. On Sunday afternoons their father would wind the grandfather clock and check the barometer to see what the weather would be that day. "We looked everywhere for a mechanical barometer in an appealing design - but could not find one anywhere. So, we decided to design one at our kitchen table, building what was a very basic initial model," said Rob. More technical versions followed and after several years of development, the first weather clock was launched in 2015. The clocks are available in two sizes with the option of four different coloured frames. Limited edition weather clocks are available but the number is restricted to just 250 clocks per design.
Extract B Data for purchasing new production machinery for the limited edition weather clocks Cost of initial investment: £150 000
Extract C Selected financial data for Bramwell Brown April 2020
Extract D The Bramwell Brown Workshop A Bramwell Brown weather clock has 150 parts that come from all over the world. These include the quartz clock mechanism from Germany and the frames from Yorkshire, UK. Every clock is produced using job production after a customer order is received. The clock is individually assembled with care and pride by extremely skilled employees in a workshop in Hampshire, UK. They personally sign and stamp a certificate that goes into its box. The weather clocks are so popular that there is a waiting list.
Extract E Bramwell Brown's design and intellectual property (IP) Ever since the initial design and product development we have protected our designs and intellectual property. We use a range of IP protection including patents, design rights, copyright and trademarks. We have actively pursued registrations of our IP across many countries worldwide and will continue to do so in all future research and development work. Bramwell Brown, along with its investors, take very seriously the protection of the company's designs and inventions. We will work hard to ensure that any violations are effectively dealt with.
Extract B Data for purchasing new production machinery for the limited edition weather clocks Cost of initial investment: £150 000
Using Extract B, calculate, to two decimal places, the average rate of return (ARR) for Bramwell Brown from investing in new production machinery. You are advised to show your working.
Extract A The Five Guys' family, freshness and customisation Jerry and Janie Mitchell lived in Arlington, Virginia. In 1986 they gave their five sons a choice: start a business or go to college. The business route won and the family opened the first Five Guys - named after the five brothers.
To this day, the formula remains simple: 'Burgers and fries cooked to perfection' in keeping with Jerry's philosophy of 'To perfect and to serve.' The family is still very much involved in the business, meeting every Tuesday.
Five Guys is organised differently from other fast-food burger outlets. You will not find a freezer in any Five Guys restaurant because everything is cooked from fresh ingredients. Food is prepared every day for maximum freshness including hand cutting the potatoes. Employees do the cooking without timers and are trained to judge the food's readiness by sight, aroma and texture. In other fast-food outlets machines are used to cook the food and timers are relied on to indicate when the food is ready to serve.
The burgers, hotdogs and sandwiches come with up to 15 free toppings, giving 250,000 combinations to choose from. If you had one a day, it would take you 684 years to try them all and the milkshake machines give over 1,000 possible combinations.
Extract B Selected financial data for Five Guys (UK and Europe) 31 December 2020 and 2021
Extract C Data for purchasing a new £10000 milkshake machine for a Five Guys restaurant
Extract D How to Incentivise Your Crew The fast-food industry is well known for its over 100% labour turnover levels. Many businesses are relying on employee incentive programmes to retain their workers.
One popular way is using mystery shoppers. A mystery shopper is a person employed to visit a shop or restaurant anonymously to assess the quality of the goods and services.
Five Guys uses mystery shoppers to assess the quality of its food and the customer services given by employees. The information gathered from mystery shoppers is used to create weekly, monthly and quarterly rewards programmes for its employees.
Five Guys rewards the top 200 restaurants every week. The weekly reward is anywhere from $900 to $1 300 per restaurant. The money is shared between the employees working in the restaurant when they were mystery shopped.
Molly Catalano, Director of Communications and Marketing at Five Guys, said, "We think that our success can be seen in the increasing mystery shopper scores over time, in the satisfaction of our employees and in our growth as a company. We have seen success in all three areas."
Five Guys is still expanding and has 1,600 locations in 19 countries across the world.
Extract E Five Guys launches merchandise collection Five Guys, known for its burgers, hot dogs and milkshakes, has launched the first of its clothing lines branded with the Five Guys logo in the UK.
The main item from the collection is the black and white embroidered unisex college jacket that pays tribute to Arlington, Virginia, where the brand was founded in 1986. This follows the current trend for American-styled clothing, which has seen college jackets feature in high street and designer collections during summer 2022.
Alongside the college jackets are the official Five Guys t-shirts, featured in red, black and white, branded sweatshirts and hoodies, baseball caps and red-and-white checked sports socks. There is even a lightweight rain jacket with the Five Guys logo.
Prices start from £10 for the socks to £75 for the college jacket. T-shirts cost £20 each, while sweatshirts are priced at £35 and hoodies at £45. All can be purchased at the Five Guys online store.
Extract A The Five Guys' family, freshness and customisation Jerry and Janie Mitchell lived in Arlington, Virginia. In 1986 they gave their five sons a choice: start a business or go to college. The business route won and the family opened the first Five Guys - named after the five brothers.
To this day, the formula remains simple: 'Burgers and fries cooked to perfection' in keeping with Jerry's philosophy of 'To perfect and to serve.' The family is still very much involved in the business, meeting every Tuesday.
Five Guys is organised differently from other fast-food burger outlets. You will not find a freezer in any Five Guys restaurant because everything is cooked from fresh ingredients. Food is prepared every day for maximum freshness including hand cutting the potatoes. Employees do the cooking without timers and are trained to judge the food's readiness by sight, aroma and texture. In other fast-food outlets machines are used to cook the food and timers are relied on to indicate when the food is ready to serve.
The burgers, hotdogs and sandwiches come with up to 15 free toppings, giving 250,000 combinations to choose from. If you had one a day, it would take you 684 years to try them all and the milkshake machines give over 1,000 possible combinations.
Extract C Data for purchasing a new £10000 milkshake machine for a Five Guys restaurant
Using Extract C, calculate to two decimal places the net present value for Five Guys from investing in a new milkshake machine over five years. You are advised to show your working.
Source for use with Section B
Extract F
Tata Motors' tiny Nano proves large distraction
A decade on from the high-profile launch of Tata Motors' Nano, it sold just 94 units in December 2017, compared with an original prediction that monthly sales would be 20,000 — and eventually reach 500,000 annually. Sales of the vehicle once advertised as the group's new cash cow have been consistently poor, with production problems delaying the sale of Nano cars by a year. The Nano was also affected by Tata Motors' failure to establish a strong dealership network in rural areas, home to the majority of the car's target customers.
“Stopping the sales of the Nano would do a lot of good for Tata Motors' share price,” says analyst Arya Sen. Adding, “the Nano's biggest failure was the advertising in India. For many Indians, owning a car is a status symbol, and so cars have to be advertised in a premium way. Instead, Tata Motors advertised the Nano as being affordable and economical, which gave a poor image to the car.”
But Tata Motors' chief executive Guenther Butschek says no decision has been taken on the vehicle's fate, with the Indian group still keen to include a small vehicle in its product range, which is favoured by some drivers for its practicality in India's congested cities.
Decision Tree for the Nano
Extract F: Decision tree for the Nano
Using the data in Extract F and appropriate calculations, evaluate which is the best option for Tata Motors.
Extract F Coca-Cola is giving one of its most popular drinks a makeover Coca-Cola is changing the recipe for its Coca-Cola Zero Sugar in an effort to make the drink taste more like regular Coke. The Coca-Cola Zero Sugar aluminium can will also look different - all red rather than the present red and black can. The move comes as Coca-Cola focuses its resources on its trademark products, including Coke, Coca-Cola Zero Sugar and Diet Coke after stopping production of some struggling brands. The company hopes the updated version of Coca-Cola Zero Sugar will attract more consumers. The new version of Coca-Cola Zero Sugar is estimated to replace the current one in the US and Canada in September 2021.
Extract G Proposed schedule and network for the redevelopment of Coca-Cola Zero Sugar
Using the data in Extracts F and G, and appropriate critical path analysis (CPA) calculations, evaluate the benefits of CPA to a business such as Coca-Cola.
Extract G
Burger King to renovate its restaurants
Fast-food restaurant chain Burger King announced it will spend $400 million on advertising and renovating its restaurants as part of a strategy to increase its revenue. Burger King is struggling to compete with its main competitor, McDonald's. Burger King plans to renovate the restaurants with new kitchens and furniture and update the technology. The restaurants will undergo building work to modernise them. Burger King expects to see an average sales increase of 12% in the first year for the renovated restaurants. The strategy has received support from its franchisees, who will have to provide some of the funding. The franchisees that agree to the changes will see their restaurants temporarily closed but they will be rewarded by receiving a discount on the royalty fees paid to Burger King for up to seven years.
Extract H
Proposed schedule and network for the renovation of the restaurants
Extracts A, B, C and D adapted from: https://www.bosch.com/company/
Extract E adapted from: https://www.wellsfargo.com/about/corporate/history/
Extract F adapted from: https://wallethub.com/edu/sa/bank-market-share-by-deposits/25587
Extract G adapted from: https://www.cnbc.com/2022/09/09/burger-king-400-million-plan-to-revive-us-sales-with- remodels-advertising.html