A-level Business (7132) · Paper 1: Business 1

Question 16 [4 marks]

(a) EV = (0.55 x £400,000) + (0.45 x £150,000) = £220,000 + £67,500 = £287,500. Net gain = £287,500 - £120,000 = £167,500. (b) Option 1 (higher net gain).

• 1 mark: correct EV method.
• 1 mark: EV £287,500.
• 1 mark: net gain £167,500.
• 1 mark: Option 1 (own figure rule applies).

Own figure rule applies to follow-through errors.

Question 17 [4 marks]

Total returns £3,900,000; net profit = £3,900,000 - £2,400,000 = £1,500,000; per year £300,000; ARR = £300,000 / £2,400,000 x 100 = 12.5%.

• 1 mark: total net profit £1,500,000.
• 1 mark: average annual profit £300,000.
• 1 mark: divided by initial cost x 100.
• 1 mark: 12.5%.

Own figure rule applies to follow-through errors.

Question 18 [9 marks]

• Retrenchment = reducing the scale of operations (closing sites, cutting product lines, selling divisions).
• Falling demand (recession, changing tastes) leaves spare capacity - closing sites raises capacity utilisation and lowers unit costs.
• Diseconomies of scale - coordination and communication problems; cutting layers improves control and speed.
• Refocus on core competences - selling unrelated divisions frees cash and management time.
• Improve cash flow and reduce gearing by selling assets in a financial crisis; may satisfy shareholders seeking higher ROCE.
• BUT costs of redundancy, damage to morale and reputation, and loss of capacity if demand recovers.

A 9-mark "Analyse" question needs no conclusion; a judgement earns no extra marks.

Question 19 [9 marks]

• Higher tax reduces profit for the year, so less retained profit is available to fund investment internally.
• Post-tax returns on projects fall - fewer projects meet the business's investment criteria (e.g. required ARR or NPV).
• May switch to external finance - borrowing raises gearing and risk.
• May shift investment to countries with lower tax rates (off-shoring of new capacity).
• Shareholders receive lower dividends, so the share price may fall, making raising share capital harder.
• BUT capital allowances may reduce the effect; long-term strategic investments (e.g. automation to stay competitive) may still go ahead.

A 9-mark "Analyse" question needs no conclusion; a judgement earns no extra marks.

Question 20 [9 marks]

• Gives employees control over their working lives - autonomy and trust (Herzberg: responsibility; job enrichment).
• Reduces stress and commuting costs - meets security and social/family needs (Maslow), improving wellbeing and attendance.
• Signals that the employer values staff, improving engagement and reducing labour turnover.
• Wider recruitment pool (parents, carers) - staff better matched to roles.
• BUT home working can reduce social contact and team spirit; monitoring performance is harder; some staff may feel isolated or unfairly treated if not eligible.

A 9-mark "Analyse" question needs no conclusion; a judgement earns no extra marks.

Question 21 [25 marks]

To what extent is a low-cost positioning strategy more appropriate than differentiation for a business operating in a market where buyers have a lot of power?

• Powerful buyers (e.g. supermarkets buying from manufacturers) push prices down - only low-cost producers keep acceptable margins.
• Standardised products with little to distinguish them give buyers easy alternatives - competing on cost is realistic.
• Economies of scale and lean production allow survival at low prices.

• Differentiation reduces buyer power by making the product hard to replace (strong brand, patents, unique features) - consumers demand it, so retailers must stock it.
• Only one business can be the lowest-cost producer - others are squeezed.
• Focus strategies (niche) can avoid powerful mass-market buyers by using direct-to-consumer channels.
• Depends on the business's resources and core competences.

Low cost can be necessary when products are commodities and buyers are concentrated, but differentiation is often the better long-term response because it changes the balance of power.

Question 22 [25 marks]

To what extent does the successful implementation of a strategy depend on effective communication?

• Employees must understand the strategy and their role in it; poor communication causes confusion, rumours and resistance.
• Two-way communication brings feedback that helps managers adjust implementation.
• Communication with external stakeholders (investors, suppliers) maintains support and finance.

• Leadership, resources (finance, skills), organisational structure and culture are also critical.
• Network analysis/project planning needed to coordinate activities on time.
• A poor strategy will fail however well it is communicated; external change can derail implementation.

Communication is a necessary condition but rarely sufficient; its importance increases with the scale of change and the number of people affected.

Question 23 [25 marks]

'Cash flow is more important than profit for all businesses.' Do you agree? Justify your view.

• Businesses fail because they run out of cash, not because they make a loss in one year - profitable businesses can fail through overtrading.
• Cash pays wages and suppliers; lack of cash damages supplier relationships and credit terms.
• Start-ups and fast-growing firms face long gaps between paying costs and receiving cash.

• Long-term survival needs profit - losses eventually drain cash; investors and lenders judge businesses by profitability (ROCE).
• Large, established businesses with overdraft facilities can manage short-term cash shortages.
• Profit funds investment (retained profit) and is the main objective of shareholders.
• Non-profits care about surpluses/break-even rather than profit.

In the short run and for small or rapidly growing firms cash is usually more critical; in the long run profit is essential - the answer depends on time scale and the business's situation.

Question 24 [25 marks]

'Social media has made traditional forms of promotion unnecessary.' Do you agree? Justify your view.

• Social media is cheap, targeted (data on users) and measurable; viral marketing can reach millions at low cost.
• Two-way engagement builds relationships and brand loyalty; influencers reach younger audiences who watch little TV.
• Small businesses can compete with large ones.

• Older audiences and some B2B customers are reached better by TV, print, trade fairs and sales teams.
• Social media is crowded - organic reach is falling and paid ads are increasingly expensive.
• Negative viral content can damage brands quickly; less control over message.
• Integrated campaigns (TV + online) often work best; mass-market brands still use TV to build awareness.

Social media has reduced reliance on traditional promotion but has not made it unnecessary - the right mix depends on the target market, product and budget.