AQA A-Level Business: Finance
6 exam-style questions with full mark schemes and model answers. Write your own answer and the AI examiner marks it against the mark scheme.
The following case study was written for this exercise.
Brightleaf Coffee Ltd is a private limited company that roasts and wholesales speciality coffee from a single site in Bristol. It was founded in 2018 by two directors, Priya and Sam, who between them still own 100 % of the share capital. The business has grown quickly: revenue rose from £1.9 million in 2022 to £4.6 million in 2025, and last year it made an operating profit of £552,000 (an operating profit margin of 12 %).
The directors want to fund a major expansion: a second roastery in the Midlands plus a new automated packing line. The total cost is forecast at £2.4 million, of which roughly £1.8 million is for property and equipment and £0.6 million is additional working capital. Brightleaf currently holds £640,000 of retained profit and has modest existing borrowings, giving a gearing ratio of about 22 %. The directors have been offered three broad routes: reinvesting retained profit topped up with a five-year bank loan; issuing new shares to a regional venture-capital fund that would take a 30 % stake and a board seat; or a mix of leasing the packing line and using an overdraft for the working-capital element.
Priya is anxious about losing control and about taking on too much debt in a period of volatile interest rates; Sam is more concerned that under-funding the expansion will leave the business unable to meet demand from two large national customers it is trying to win.
Question: Evaluate the best way for Brightleaf Coffee Ltd to finance its £2.4 million expansion. [25 marks]
The following case study was written for this exercise.
Harbour & Vale Interiors Ltd is a start-up that will hand-make upholstered sofas to order from a workshop in Devon. Before launching, the two founders have built a break-even model to test whether the venture is viable. Their figures for the first year are:
| Item | Value |
|---|---|
| Selling price per sofa | £180 |
| Variable cost per sofa (materials and direct labour) | £108 |
| Fixed costs per year (rent, salaries, insurance) | £216,000 |
| Forecast sales (year 1) | 3,600 sofas |
From these figures the founders have worked out a contribution per sofa of £72, a break-even output of 3,000 sofas and a margin of safety of 600 sofas. They are encouraged, but a friend who runs an established furniture firm has warned them that "break-even charts look reassuring on a spreadsheet, but the real world rarely behaves like the model".
Question: Assess the usefulness of break-even analysis to the founders of Harbour & Vale Interiors Ltd when deciding whether to launch the business. [16 marks]
The following case study was written for this exercise.
Stonemoor Garden Supplies Ltd is a small garden-products retailer with three stores in Yorkshire. Its trade is highly seasonal: roughly 60 % of annual sales fall in the March-June planting season, while takings over the winter are very low. The business buys much of its stock - compost, plants and tools - several months ahead of the spring rush, paying suppliers well before customers buy. Last winter the finance manager was caught out when a large supplier invoice and the quarterly rent fell due in the same week as a quiet trading period, and the business had to arrange an emergency overdraft at short notice. For the coming year the owner has asked the finance manager to prepare a monthly cash-flow forecast.
Question: Analyse two reasons why preparing a cash-flow forecast might benefit Stonemoor Garden Supplies Ltd. [9 marks]
The following figures were written for this exercise.
Cedarwood Furnishings Ltd makes and sells office furniture. An extract from its latest financial statements is shown below.
| Item | Value (£) |
|---|---|
| Revenue | 800,000 |
| Cost of sales | 480,000 |
| Operating profit | 96,000 |
| Capital employed | 480,000 |
Using the data above, calculate Cedarwood Furnishings Ltd's gross profit margin, operating profit margin and return on capital employed (ROCE). Show your working, and state what the ROCE figure tells the directors. [6 marks]
The following figures were written for this exercise.
Northgate Logistics Ltd runs a fleet of delivery vehicles. It has a gearing ratio of 68 %, having funded most of its recent fleet expansion with bank loans. The directors have approached a bank for a further loan to buy additional vehicles.
Explain one reason why Northgate Logistics Ltd's high gearing ratio might concern the bank considering the new loan. [5 marks]
The following figures were written for this exercise.
Pebble & Pine Candles Ltd makes scented candles. The relevant figures for one of its candles are shown below.
| Item | Value |
|---|---|
| Selling price per candle | £25 |
| Variable cost per candle | £15 |
| Fixed costs per year | £80,000 |
Calculate the break-even output (in candles per year) for Pebble & Pine Candles Ltd, and state what this figure means. [4 marks]