Mock Exam.docx

Question 1: Cash Flow Projection and Financing Options (30 marks) Fiona has decided to open a fashion boutique. She invested an initial capital of £15,000. The table below presents her expected monthly cash inflows and outflows for the first three months: Month Revenue Rent & Utilities Salari...

Question 1: Cash Flow Projection and Financing Options (30 marks) Fiona has decided to open a fashion boutique. She invested an initial capital of £15,000. The table below presents her expected monthly cash inflows and outflows for the first three months: Month Revenue Rent & Utilities Salaries Supplies January £7,000 £2,500 £2,000 £1,200 February £8,000 £2,500 £2,000 £1,400 March £9,000 £2,500 £2,000 £1,600 Construct a monthly cash flow projection for Fiona's boutique for the first three months. (10 marks) Explain the importance of maintaining a positive cash flow for Fiona's boutique and the implications of a negative cash flow. (10 marks) Fiona used two different sources of finance to gather her initial capital. Describe two common sources of finance entrepreneurs might use for startups and their respective advantages and disadvantages. (10 marks) Question 2: Net Present Value (NPV) and Payback Period (35 marks) The local tourism board is evaluating two attractions for the city's famous seaside pier. Attraction A is a giant Ferris wheel that requires an initial cost of £120,000 and is expected to generate revenue of £40,000 each year for 4 years. Attraction B is a merry-go-round that requires an initial cost of £80,000 and expects to yield revenue of £25,000 each year for 4 years. Please consider 10% as in interest rate. Define the Net Present Value (NPV) and discuss its importance in investment decisions. (10 marks) Calculate the payback period for both attractions A and B. (10 marks) The tourism board also values the cultural and historical significance of the attractions, not just the revenue. Discuss why they might still choose an attraction with a longer payback period or a lower NPV. (15 marks) Question 3: Marginal Value, Breakeven Point, and Cost Analysis (35 marks) Eric's Electronics Store Eric sells a popular brand of headphones. The table below provides information on the costs associated with producing and selling the headphones: Item Cost Selling Price per Headphone £50 Variable Cost per Headphone £30 Monthly Fixed Costs (Rent, Salaries, Utilities) £5,000 Define and calculate the marginal value (contribution margin) for each headphone sold. (10 marks) Using the table, calculate the breakeven point in terms of units sold and in terms of revenue. (10 marks) Based on the costs provided, offer two recommendations for Eric to increase his profit margin. (15 marks)