a perfect practice book for paper 3 case study

Cambridge Assessment International Education 9609/3

A Perfect Practice Book For

Paper 3 Case Study

from 2006 to 2018

Consolidated Topic wise

430+ Q’s with Mark Scheme Arranged by

ASIF IQBAL 03214454770

Content Topic Page About the Author Content 5 How to Use this Booklet? 6 Introduction (Syllabus Overview) 7 Examiner Tips 9 CAIE A Level Business 9609 Syllabus 2019-21 12

1. Business and its Environment 23 1.2 Business structure 24 1.3 Size of Business 25 1.4 Business Objectives 27

1.5 Stakeholder in a Business 33 1.6 External influences on business activity 34

2. People in Organisations 57 2.3 Human resource management (HRM) 58 2.4. Organisational structure 101 2.5 Business communication 110 3. Marketing 117 2.5 Business communication 118 3.5 Globalisation and international marketing 165

4. Operations and Project Management 174 4.2 Operations planning 175 4.4 Capacity utilization 184 4.5 Lean production and quality Management 193 4.6 Project management 201

5. Finance and Accounting 211 5.2 Source of Finance 212 5.3 Costs 216 5.6 Budgets 243 5.7 Contents of published accounts 247 5.8 Analysis of published Accounts 251 5.9 Investment appraisal1 295

6. Strategic Management 321 6.1 What is strategic management? 322 6.2 Strategic analysis 332 6.3 Strategic choice 649 6.4 Strategic implementation 382

Business and its environment In this chapter, students will practice these topics:

1.2 Business structure 1.3 Size of business 1.4 Business Objectives 1.5 Stakeholder in a Business 1.6 External influences on business activity

1

Topical Paper 3

www.studentsresource.net & www.fb.me/students.resource. Tell: 0321-4567519 / 0320-4567519 / 042-35227007 / 04235700707

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Case Study 23 9707/33/O/N/10/Q1

1. Analyze two possible reasons why the National Bus Company (NBC) became more profitable after privatization. [8]

MARK SCHEME

Content 2 marks Application 2 Marks Analysis 4 Marks

Level 2 2 marks Good Understanding of privatization shown

2 Marks Answer well applied

3–4 Marks Good use of theory or reasoned argument to explain answer

Level 1 1 mark Some understanding shown

1 Mark Some application

1–2 Marks Some use of theory or reasoned argument to explain answer

Answers could include:

• Definition of privatization – selling of state-owned assets to the private sector.

• Profit motive – cut costs to increase profits, e.g. increase driver productivity and reduce number of drivers.

• Profit motive – research customers’ needs and offer more bus services that can generate additional contribution.

• No political pressure to keep routes open or employment levels high – efficiency savings likely to increase profits.

A2 Business Topical Paper 3 1.2 Business Structure

©STUDENTS RESOURCE ASIF IQBAL (03214454770)

Chapter 1: Business and its Environment Topic 1.2: Business structure


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Case Study 31 9707/32/M/J/12/Q1

1. Analyze the benefits to GCC of being a widely diversified conglomerate. (Lines 4-5) [10] MARK SCHEME

Knowledge 3 marks

Application 3 marks

Analysis 4 marks

Level 2 3 marks Good knowledge shown of diversification and benefits e.g. definition + 2 benefits or 3 benefits.

3 marks Points well applied.

3–4 marks Good use of reasoned argument or theory to explain benefits of diversification.

Level 1 1–2 marks Knowledge shown of diversification and one benefit OR two benefits.

1–2 marks Some attempt to apply points or one point well applied.

1–2 marks Some use of reasoned argument or theory to explain benefits of diversification.

Answers could include: • Diversification – business operates/own subsidiaries in a range of industries/markets –

conglomerate. This knowledge might be implied from candidate’s answer. • Benefits: [For application marks these benefits must relate to the case.] • Spread risks e.g. Application: education division not affected by global downturn but

other divisions were. This allows the business to expand/become more profitable in some markets whilst other operations are affected by economic downturn.

• Cross-financing e.g. Application: profits from other divisions used for school expansion as the finance available from schools division were inadequate. This could help to reduce finance costs.

• Possible marketing/supplying links between divisions e.g. Application: schools might have bigger discounts on books bought from the GCC publishing division might increase profitability of schools; car manufacturing might benefit from supplies of GCC steel. Other links are possible too – some indications of vertical integration.

A2 Business Topical Paper 3 1.3 Size of Business


Chapter 1: Business and its Environment Topic 1.3: Size of business


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Case Study 32 9707/33/M/J/12/Q1

2. Analyze TWO possible effects further vertical integration could have on CAL’s future success. [10]

MARK SCHEME

Knowledge 3 marks

Application 3 marks

Analysis 4 marks

Level 2

3 marks Good knowledge shown of vertical integration with 2 effects.

3 marks Both points well applied.

3–4 marks Good use of reasoned argument or theory to explain effects.

Level 1 1–2 marks Knowledge shown of vertical integration and/or impact of.

1–2 marks Some attempt to apply both points or one point well applied.

1–2 marks Some use of reasoned argument or theory to explain effects.

Answers could include: • Definition of vertical integration – same industry but different stage of production. • Effects could be positive or negative. • Cheaper supplies of components if CAL owned a component supplier – important in a

competitive market like this. • Easier to control quality and reliability of supplies – important to CAL as these had been

problems. • Management problems of trying to control an integrated business – existing factory

problems could be repeated. • Component supplying business may lose contracts from CALs competitors – cutting sales

and profits. Application could link to issues such as: use of JIT, reference to reducing costs by 10% and components used in manufacturing air conditioning units.

A2 Business Topical Paper 3 1.3 Size of Business



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People in organisations In this chapter, students will practice these topics:

2.3 Human resource management (HRM) 2.4. Organisational structure 2.5 Business communication 2

Topical Paper 3


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Case Study 5 9707/03/M/J/04/Q(a)

1. Discuss the advantages and disadvantages for Topaz of its staff joining a Trade Union. [10]

MARK SCHEME

Possible answers to include: Explanation of what TU’s are and why workers often join them; act as a channel of communication between staff and managers (seems to be needed in this case), used for collective bargaining, can help to resolve grievances and improve sense of involvement (needed in this case), can be part of a single union/no-strike deal. BUT may stimulate grievances (could be damaging to Strategy A with time limit penalty), can lead to industrial action, change balance of power between workers and managers.

K and App An and E

Level 2 4-3 marks Applies points made to the case

6-4 marks Judgment shown in text or conclusion

Level 1 2-1 marks Knowledge shown about TU’s

3-1 marks Uses theory to explain the impact that TU’s might have on a business

Case Study 7 9707/03/M/J/05/Q6

2. Assume Paula decides to buy Midvale school. Evaluate how Paula might deal with the Human Resource Management problems that are likely to occur. [20]

MARK SCHEME

Knowledge Application Analysis Evaluation

Level 3

10-7 marks Good judgment shown in text and conclusions

Level 2

3 marks Good understanding shown

3 marks Good application of points to case

4-3 marks Good use of theory to explain points made

6-3 marks Some judgment shown in text and/or conclusions

Level 1

2-1 marks Some understanding shown

2-1 marks Some application to case

2-1 marks Some use of theory made

2-1 marks Limited judgment shown

A2 Business Topical Paper 3 2.3 Human Resource Management


Chapter 2: People in Organisations Topic 2.3: Human resource management (HRM)


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Answers could include: • Problems of labour turnover, staff redundancies, motivation, workforce planning,

recruitment, appraisal etc. Not all of these have to be identified • Why these are problems to this business and need to be addressed • Possible suggestions: Workforce plan essential. New approaches to motivation seem

essential e.g. job enrichment • Communication improvements • Effective recruitment of new deputy and new staff essential • Bonus payments based on results/appraisal?

Evaluation might include: Need to balance costs of HR proposals against the benefits of ‘solving’ the problems; HRM unlikely to be really successful unless Paula adopts a more Theory Y attitude to these problems. Justification of most important points.

Case Study 9 9707/03/M/J06/Q5

3. Discuss how the directors might encourage staff involvement and cooperation in helping to solve the problems faced by Rave. [16]

MARK SCHEME


Level 2

3-2 marks Good awareness shown of methods that might be used by management

3-2 marks Well applied to case

4-3 marks Good use of theory to analyze the suggestions made

6-4 marks Good judgment shown in text and conclusions

Level 1

1 mark One relevant point made

1 mark Attempts to apply to case

2-1 marks Some use of theory to answer question

3-1 marks Some judgment shown in text and/or conclusions

Answers could include: Many of these changes are very substantial and, to be successful, will require a cooperative and flexible workforce.

Fear of redundancy will remove security and this issue might need to be dealt with first.

Staff will need to be retrained to accept lean production philosophy.

JIT will require high quality standards – scope for quality circles and TQM to involve staff in achieving these.

Style of leadership/management will be important – perhaps the approach of the Marketing Director and Ops Director will not be appropriate. Need for openness not secrecy?




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Pay might be relevant if it is tied in with a flexibility/training requirement.

Knowledge Application Analysis Evaluation Level

3 8-5 marks

Good judgment shown in text and conclusions

Level 2

4-3 marks Good awareness shown of the relevant subject content

4-3 marks Issues raised well applied to case

4-3 marks Good use of theory to explain answer

4-3 marks Good judgment shown in either text or conclusions

Level 1

2-1 marks Some awareness shown of relevant subject content

2-1 marks Some application of issues to case

2-1 marks Some use of theory to explain answer

2-1 marks Limited attempt to show judgment

Case Study 12 9707/03/O/N/07/Q2

4. (a) Analyze TWO possible problems that might result from the approach to managing staff used within the Asian Experience kitchen. [6] (b) Evaluate the appropriateness of Ling’s approach to managing staff within the Curry Cuisine restaurant. [14]

MARK SCHEME

(a) Knowledge Application Analysis Level 2 2 marks

Two problems identified

2 marks Both applied to case

2 marks Good, relevant use of theory to explain points

Level 1 1 mark One problem identified

1 mark One applied to case

1 mark Some use of relevant theory to explain points

• Labour turnover might increase – Chas and Ling left when they could. • Accidents might occur due to pressure on staff and poor conditions – legal costs. • Poor motivation might lead to low quality – impact on reputation. • Absenteeism – may lead to poor customer service in busy restaurant. • Union membership may become more attractive to workers and disputes might result.

(b) Knowledge Application Analysis Evaluation Level 2

2 marks: Good understanding of leadership style shown

2 marks: Well applied to case

5–3 marks: Good use of theory to explain the consequences of leadership style

5–3 marks: Good judgment shown on the impact of Ling’s style

Level 1

1 mark: Some understanding of leadership style

1 mark: Some application to case

2–1 marks: Some use of theory

2–1 marks: Some judgment shown




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Marketing In this chapter, students will practice these topics:

3.4 Marketing planning 3.5 Globalisation and international marketing

3 Topical Paper 3


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Case Study 5 9707/03/M/J/04/Q(c)

1. Assume that the directors decide to start exporting “Robot Warrior” and “Gita Doll” to your country. Suggest and evaluate a strategy for marketing these toys in your own country. [12]

MARK SCHEME

Possible answers to include: Market research needed to inform M. mix decisions – this will help to determine appropriate marketing objectives; marketing budget must be adequate; price must reflect local market conditions and required image of product; promotion needed to inform and raise awareness – directed at parents and/or children; product may need to be adapted to local conditions; method of distribution should suit local conditions. Must be put into own country context for full marks. (Accept discussion of computer games not dolls).

K and App An and E

Level 2 4-3 marks Applies points to this product and own country

8 - 5 marks Judgement shown in text or conclusions that demonstrates own country context

Level 1 2-1 marks Relevant points made about marketing strategy

4 - 1 marks Theory used to analyse relevant points

Case Study 7 9707/03/M/J/05/Q5

2. Assume that the new building is constructed. Evaluate a marketing plan that Paula could introduce to attract new students to Wotton College. [16]

MARK SCHEME

Knowledge Application Analysis Evaluation Level

2 3 marks Good understanding of marketing plan shown

3 marks Good application of points to case

4-3 marks Good use of theory to analyse points made

6-4 marks Good judgement shown in text and conclusions

Level 1

2-1 marks Some understanding shown

2-1 marks Some application to case

2-1 marks Some use of theory to analyse points made

3-1 marks Some judgement shown

Limit of Level 1 Knowledge and Evaluation if no clear understanding of marketing plan (as opposed to a simple ‘mix’ answer).

A2 Business Topical Paper 3 3.4 Marketing Planning


Chapter 3: Marketing Topic 3.4: Marketing planning


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Answers could include: • Explanation of marketing plan – detailed report containing marketing objectives, budget,

strategy • ‘Product’ seems to be essential (i.e. the buildings, facilities, results etc.) • Price – conflicting pressures here. Removing competitor might give scope for increases

but more overseas schools setting up • Promotion – seems to be inadequate give the high AED • Place – is it well located to deal with expansion of this market sector? • Plan needs to be evaluated i.e. likely chances of success or factors that might limit its

success. Are the school’s marketing objectives clear and is budget sufficient?

Case Study 8 9707/03 O/N/05/Q4

3. (a) Analyse how value analysis could assist in the development of the new mobilephone (cell phone). [6] (b) Evaluate the marketing factors that could influence the sales success of the new phone. [12]

MARK SCHEME

(a) Knowledge Application Analysis Level 2 Good understanding of value

analysis shown. [2 marks] Good application to case. [2 marks]

Good use of theory. [2 marks]

Level 1 Some understanding shown. [1 mark]

Some application to case. [1 mark]

Some use of theory. [1 mark]

Content: Definition: An analysis of the main features of a product (looks, function and cost of manufacture) to see if the same performance and style could be achieved at lower cost. Seems to be essential here as the telephone may become very expensive if all of these features are added. Some groups of consumers will be very cost conscious in some countries. Appearance of phones is very important to certain consumer groups. Compromise will be necessary between these features.

(b) Knowledge Application Analysis Evaluation Level 2 Good knowledge

shown. [2 marks] Good application to case. [2 marks]

Good use of theory to explain answer. [3-4 marks]

Good judgment shown. [3-4 marks]

Level 1 Some knowledge shown. [1 mark]

Some application to case. [1 mark]

Some use of theory to explain answer. [1-2 marks]

Some judgment shown. [1-2 marks]

Content: Segmentation will allow product to reach more consumers and should result in higher sales and profits. Price will be important if it is a competitive and price elastic market. Promotion of features will be important – is budget available for this? Actions of competitors will be important. Has this p roduct got a real USP? Can it be copied?




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Case Study 9 9707/03 O/N/05/Q1(b)

4. Using Appendix B and other information, evaluate the usefulness of product portfolio analysis techniques, such as the Boston Matrix, to Rave. [12]

MARK SCHEME

Knowledge Application Analysis Evaluation Level Two

3-2 marks Good understanding shown of product portfolio analysis

3-2 marks Good application of PPA e.g. good use of Appendix B

3 marks Good use of theory to explain answer

3 marks Good judgement shown in text or conclusions

Level One

1 mark One point made about PPA

1 mark Limited attempt to apply knowledge

2-1 marks Limited attempt to analyse answer

2-1 marks Limited attempt to show judgement


• Use of Boston Matrix diagram and/or terminology (accept relevant use of PLC too e.g. if they argue for a balanced product portfolio with products at different stages of PLC).

• Fruit chews could be ‘dog’; Mints could be ‘Cash cow’; Fruit bars could be ‘Star’ and Candy bars could be ‘Problem child’.

• Could use cash from successful products to invest in replacements for failing products or to invest in new promotions for them etc.

• Managers could decide to ‘hold’; ‘divest’ or ‘build’ on these different products.

• May be useful in helping managers take appropriate decisions. May not be useful if data is not up to date (e.g. on market share) or if it is interpreted incorrectly or if competitors respond more quickly than Rave do.

Case Study 12 9707/03/O/N/07/Q7

5. Assume that Chas and Ling decide to go ahead with the “readymade meals” proposal. Evaluate the arguments for and against developing a marketing plan for this project. [20]

MARK SCHEME

• Definition of marketing plan plus details of what it is likely to contain. • Yes: Requires market research – essential in this case? Budgets must be planned. Clear

objectives set. • Gives sense of direction. Progress can be monitored. Could be shown to bank. May help

to give staff clear sense of purpose. • No: Expensive – can this firm afford it. Time consuming – they need to get going quickly. • Conditions may change quickly – will plan be too inflexible? • Haven’t used one before and they were originally successful (but would a marketing plan

have helped them identify the likely increase in competition for the restaurant?). • Max L1 for Analysis if on-sided answer.




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Operations and project management In this chapter, students will practice these topics:

4.2 Operations planning 4.4 Capacity utilization 4.5 Lean production and quality Management 4.6 Project management

4 Topical Paper 3


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Case Study 10 9707/03/O/N/06/Q4

1. Using the data in Appendix C and any other relevant information, recommend which city LoCost Airways should locate their next base in. Justify your answer. [16]

MARK SCHEME


Level Two Good awareness shown of locational factors. [3-2 marks]

Good application of points made. [3-2 marks]

Good use of theory to support answer [5-3 marks]

Good judgment shown in text and conclusion [5-3 marks]

Level One One or more relevant points identified [1 mark]

Limited attempt to apply to case [1 mark]

Some use of theory to support answer [2-1 marks]

Some judgment shown in text &/ or conclusion [2-1 marks]


• X is more expensive although outright cost does not seem to be that important in this case.

• Contribution per passenger in X could be higher due to less competition.

• Break-even customers = 200000 per year at X and 166666 per year at Y – less risk at Y of not breaking even.

• Payback period = 2.5 years at X and 2.8 years at Y – supports the less risk argument but difference is very slight and figures are forecasts.

• Profitability potentially higher at X too – ARR = 20% at X and 15.7 at Y – is this enough to swing the argument?

• Much lower unemployment in X – more difficult to recruit suitably trained airline staff BUT may indicate higher disposable incomes in this region (possibly leading to higher contribution per passenger?)

• Lower number of airlines operating from X – less competition? But smaller potential market?

A2 Business Topical Paper 3 4.2 Operations Planning


Chapter 4: Operations and Project Management Topic 4.2: Operations planning


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Case Study 15 9707/03/M/J/09/Q5

2. Recommend whether EM should set up and operate its own car retailing business in Country Z? Justify your recommendation. [16]

MARK SCHEME

Knowledge 2 marks

Application 2 marks

Analysis 5 marks

Evaluation 7 marks

Level Two

2 marks Good knowledge of issues shown e.g. two relevant points

2 marks Good application to case

5–3 marks Good use of theory and/or reasoning to support answer

7–4 marks Good judgment shown in answer and conclusion

Level One

1 mark Some knowledge of issues e.g. one relevant point

1 mark Some application to case

2–1 marks Some use of theory or reasoning to support answer

3–1 marks Some judgment shown

MARKERS’ NOTE: L1 MAX. FOR ANALYSIS AND EVALUATION IF ONE-SIDED ANSWER

Answers could include: • Vertical retailing, any benefits or drawbacks stated e.g. no experience but gives control

over marketing mix and the marketing strategy that EM aims for. • Application: No other retail outlets; new market so no local knowledge which an agent

would have, stock holding costs of cars can be high • Analysis: Use of theory/concepts to explain either benefits or limitations of this

proposal. • Evaluation: Judgment needs to be supported and weighed up against the other side.

Better to open outlets in markets that they have some knowledge of? • Is it worthwhile selling cars to Country Z at all?

Knowledge 4 marks

Application 2 marks

Analysis 6 marks

Evaluation 8 marks

Level Three


Level Two

4–3 marks Good knowledge shown


6–4 marks Good use of theory and/or reasoning to support answer

6–4 marks Good judgment shown in answer and/or conclusion

Level One

2–1 marks Some knowledge shown

1 mark Some

3–1 marks Some use of

3–1 marks Some judgment




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e.g. definitions of market segment (or multinational company)

application to case

theory or reasoning to support answer

shown

MARKERS’ NOTE: FOR BOTH QUESTIONS, L1 MAX FOR ANALYSIS AND EVALUATION IF ANSWERS IS ONE-SIDED

Case Study 21 9707/31/O/N/10/Q4(b)

3. Using your results from part (a), data in Table 2 and other information, recommend the country in which Radar should locate its new factory. [14]

MARK SCHEME

Content 2 marks

Application 3 marks

Analysis 4 marks

Evaluation 5 marks

Level 2

2 marks Two or more relevant factors identified

2–3 marks Good application to this business

3–4 marks Good use of theory to explain answer

3–5 marks Good judgment shown in answer – must include clear recommendation or justified reason why not possible to give one

Level 1

1 mark One relevant factor identified

1 mark Limited application to this business

1–2 marks Limited use of theory to explain answer

1–2 marks Limited judgment shown

Examiners’ note: Level 1 analysis and evaluation if only one source of data/information used. • Country R – lower capital cost and quicker payback (apply own figure rule throughout) –

important for this business with falling net profits (but no actual data on this given). Lower ARR but still high, as suits quite a high risk venture into a foreign country. (Accept alternative analysis if different results are taken from part (a).)

• Country S – higher ARR with potential for further profits from economies of scale in future. Higher capital cost could be a problem – Government grants available (no information on this).

• Qualitative: which location represents more of a culture shock? Managers prepared to move to either location? BUT country R might be more attractive if tourists find it appealing. Language and distance problems? Huge industry in country S could give cheap components. Country R will ensure no trade restrictions, unlike country S location.

• More information would have been helpful, e.g. actual estimated unit costs in each location.




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Finance and accounting In this chapter, students will practice these topics:

5.2 Source of Finance 5.3 Costs 5.6 Budgets 5.7 Contents of published accounts 5.8 Analysis of published Accounts 5.9 Investment appraisal1

5 Topical Paper 3


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Case Study 47 9707/33/O/N/14/Q2(c)

1. Using your results from (a) and (b) and any other relevant information, advise SC’s Finance Director whether to lease the equipment or purchase it. [12]

MARK SCHEME

Knowledge 2 marks

Application 2 marks

Analysis 4 marks

Evaluation 4 marks

Level 2 2 marks Good knowledge shown of relevant issues


3–4 marks Good use of reasoned argument or theory to explain investment appraisal result and other relevant issues


Level 1 1 mark Some knowledge of relevant issues


1–2 marks Some use of reasoned argument or theory to either investment appraisal result or other relevant issues

1–2 marks Some judgment shown in answer and/or conclusion

Answers could include: • Higher NPV for purchase • Increase in gearing ratio could be significant • Decision may depend on state of economy – are interest rates likely to increase? This

could be a disadvantage for the purchase option especially as the payback is nearly 2 years.

• Could the construction industry take a downturn and might this reduce the expected cash inflows from both options?

• The decision could be between either of the two financing options – or not to renew equipment at all if the fear of a downturn is too great

• Evaluation: Accept either option or advise not obtaining new equipment – but must be well supported by reasoned argument.

A2 Business Topical Paper 3 5.2 Sources of Finance


Chapter 5: Finance and Accounting 5.2 Source of Finance


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Case Study 48 9707/31/M/J/15/Q2(b)

2. Using your results from (a) and other information, recommend to CCF which source(s) of finance should be used to pay for the new meat processing factory. [14]

MARK SCHEME

Knowledge 2 marks

Application 2 marks

Analysis 5 marks

Evaluation 5 marks

Level 2 2 marks At least two relevant points made

2 marks Application of two or more points to case/use of results

5–3 marks Good use of theory to answer question

5–3 marks Good judgment shown

Level 1 1 mark One relevant point made

1 mark Some application to case/use of one result

2–1 marks Some use of theory to answer question


Answers could include: • Long term finance needed – $25m for P and $24m for Q • Sale of existing site – could raise $5m but how accurate is the valuation? Is it historic

cost or current valuation? Might CCF need more “chicken capacity” if new factory produces higher output?

• Borrow in form of long term loans – assuming all capital is borrowed (candidates might have different assumptions) then gearing ratio becomes 54.8% (P) or 54.5% (Q)

• Is this too high? Might be acceptable at times of low interest rates but CCF might be stretched to pay back interest if rates increase

• Cut dividend e.g. by $25m (P). This would leave dividend of $10m = 10 cents per share with dividend yield (assuming same share price) of 3.33%

• Shareholders may sell shares to gain better return elsewhere – although this could actually increase DV ratio

• Sell more shares e.g. rights issue but shareholders are not happy and may not be prepared to buy these rights – could hit share price again if more shares come on to the market.

Evaluation: • Judgment; regarding most suitable sources(s). • Combination of sources might be better to balance the risk (not such high gearing) and

keep more shareholders content (not lower dividends by full amount of £25m)




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Case Study 59 9609/32/O/N/16/Q2(b)

3. Recommend to Marco whether the new fishing boats should be purchased or leased. [12]

MARK SCHEME

Knowledge 2 marks

Application 2 marks

Analysis 4 marks

Evaluation 4 marks

Level 2

2 marks Two relevant points made about results to (a) or other factors

2 marks Factor(s) well applied to the case

3–4 marks Good use of theory to answer question

3–4marks Good judgment shown

Level 1

1 mark One relevant point made about results to (a) or other factor


1–2 marks Some use of theory to answer question


Examiner note: Candidates do not have to refer their answer from Q2(a) to access full marks OFR from part (a)

Answers could include: Knowledge: • Length of payback • Leasing is easier to finance as annual payments are made • Leasing means boats are never owned by MFI – implications for statement of financial

position? • Purchasing may give greater flexibility of how the boat is used • Maintenance costs may be covered by leasing

Application • Slower payback with purchase and/or lower NPV. (Leasing payback is 2.5 years / NPV

$850 000 compared to purchase payback of 3yrs 10mths / NPV $701 400). So if outright gain is an objective, boats should be leased

• Can MFI raise $3.2m as purchase price of the boats? • With interest rates rising is now a good time to borrow finance for the boats? • Value (if any) of old boats being replaced has not been considered. • Will boatyard fulfil its promise to buy boats back after 5 years? Will it still be in business?

Analysis • Higher interest rates will mean that if MFI borrows money to purchase the boats that

interest repayments will be greater and thus increase costs and reduce profitability

Evaluation: • Overall conclusion and recommendation based on preceding analysis




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a perfect practice book for paper 3 case study

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