SECTION B (40 marks)
1. Identity two problems a cake shop franchiser might face and suggest two ways to solve them.
(6 marks)
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Future competitor: Secret recipe of cakes can be kept by the franchiser
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Difficult to control quality: All cakes will be delivered to franchisees by the central kitchen
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Disagreement between franchiser and franchisee: Specify clearly all the terms and conditions in
The franchise agreement to avoid arguments
2. Explain two ways in which small business could perform better than big business.
—
—
—
—
(4 marks)
Closer contact with customers and employees
Less hierarchies and simpler structure
Lower administrative costs
More flexible to respond to market changes and easier to full up market niches
3. Explain two contributions of multinational corporations (MNCs) to host countries.
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Provide employment opportunities
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Enhance technology development
—
Bring in capital and boost economy
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Improve local infrastructure
(4 marks)
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1213 S.6 BAFS Paper 1 Pre Examination
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By M. C. WONG
4. Explain how information technology improves communication of a company.
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E-mail provides a very fast, inexpensive, and efficient way to communicate
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Meetings can be conducted through videoconferencing
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Intranet allows the faster flow of information within an organization
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Internet allows the company to communicate faster with outsiders
(4 marks)
5. Yummy! Yummy!, owned by Mr. Lee, is a small restaurant in Tsui Sha Tsui. In recent years, the firm has been very
profitable and is considering expansion. However, he lacks financial support and is also concerned about human
resources management problems.
(a)
—
—
(b)
Suggest one governmental support measure to help Mr. Lee
Fund raising: SME Loan Guarantee Scheme
Staff training: SME Vocational Training Council
One of the business objectives is social objective. Explain two ways in which Yummy! Yummy! can
achieve this goal.
—
—
—
(1 marks)
(3 marks)
Pricing the product fairly
Ethics in advertising
Participating in community activities
6. Mark Chan, a 70-year-old chef, retired last year and was wondering whether to buy debentures or stocks.
(a)
—
—
—
Explain two advantages of buying debentures over stocks?
(4 marks)
Prior claim on assets
Fixed interest received
Lower risk of capital loss
Also, he got another option which is operating a café. It is estimated that the initial cost of investment is $2,000,000
and he expects that sales amount to $300,000, $600,000 and $900,000 in the first, second and third year
respectively and the expenses incurred are $600,000 per year. The café is estimated to be sold at the end of third
year at a price of $2,000,000.
(b)
Assume that the cost of capital is 10% per annum, calculate the net present value of the project.
(3 marks)
NPV = (300,000/1.1 + 0/1.12 + 600,000/1.13)  $2,000,000
= $544,703
(c)
Advise Mark whether he should make the investment.
(1 mark)
Mark should not make the investment because the net present value of it is negative.
(d)
Name two non-financial factors Mark should consider before opening the café.
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Risk associated with the operation of a café
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Personal ambition
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Personal expertise
—
Personal commitment
(2 marks)
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1213 S.6 BAFS Paper 1 Pre Examination
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By M. C. WONG
7. Nelly Company is now considering acquisition as a means of expansion. She gets two potential company’s financial
information and ask for your advice.
The following are the financial ratios of Jolly company and Lolly company for the year ended 31 December f20X9.
(a)
Jolly company
Lolly company
Current ratio
5:1
2:1
Quick ratio
0.5 : 1
1.1 : 1
Nelly suggests that Jolly company’s profitability is better than that of Lolly company. Do you agree
with her? Explain.
(3 marks)
Disagree
— Current ratio and Quick ratio measure the liquidity of a company but not the profitability
— Net profit ratio, gross profit ratio and return on capital employed measure the profitability buy
they are not shown here
(b)
Comment on the liquidity of Jolly Company and Lolly Company in 20X9.
—
Jolly company’s current ratio is higher than that of Lolly company
—
Jolly company’s current ratio is too high
—
Indicate that it did not use resource efficiently
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Jolly company’s quick ratio is lower than that of Lolly company
—
Indicate that Jolly company may have difficulty in meeting short-term debts
—
There is a large difference between quick ratio and current ratio for Jolly company
—
Indicate too much capital is tied up in the inventory or prepayment
(c)
Advise which company Nelly should take over.
(4 marks)
(1 mark)
Lolly company
END OF PAPER
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1213 S.6 BAFS Paper 1 Pre Examination
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By M. C. WONG