Global Innovations AG, a Swiss research firm, recorded strong profits in 2024 but faces challenges in managing its day-to-day operations. The CEO has identified several areas requiring immediate financial attention.
State two reasons why businesses need finance.
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Nordic Steel AB, a Swedish manufacturing firm, is evaluating its expenditure patterns. The financial controller has highlighted the distinction between different types of business spending, particularly focusing on capital expenditure in their 2024 budget.
Define the term 'capital expenditure'.
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Emirates Trading Group, a Dubai-based retail company, has implemented new cost monitoring systems in 2024. The finance team focuses particularly on managing revenue expenditure to maintain profitable operations.
Define the term 'revenue expenditure'.
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Mexican Pharmaceuticals SA, a leading healthcare manufacturer, needs to budget for its day-to-day operations in 2024. The financial controller must identify key areas of revenue expenditure.
State two examples of revenue expenditure.
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Finance managers at energy company Portuguese Renewables SA pride themselves on their efficient management of its day-to-day operations. The 2024 financial strategy emphasises the importance of working capital for business stability.
Define the term 'working capital'.
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Kenya Coffee Cooperative Ltd, an East African agricultural business, experienced cash flow challenges in 2024 despite strong sales. The finance director needs to review working capital management.
State two components of working capital.
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Norwegian Seafood AS, a Scandinavian food processing company, monitors its financial stability closely. Their 2024 annual report emphasises the importance of liquid assets for business operations.
Define the term 'liquid assets'.
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Tesla is expanding its European operations with a new gigafactory in Berlin. The company plans to spend €4 billion on state-of-the-art robotic assembly lines and automated manufacturing systems.
Explain one reason why Tesla's spending on robotic assembly lines is classified as capital expenditure.
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Bloom Interiors is a small business specialising in designing and manufacturing custom furniture. The company is well-regarded for its craftsmanship and uses high-quality materials. With increasing demand for sustainable furniture, Bloom is considering upgrading its machinery to enhance production capacity and reduce waste.
The estimated cost for the new machinery is £50,000, which represents a significant investment for the company. To fund this, Bloom is evaluating whether to use retained profits or apply for a short-term bank overdraft. Management is particularly concerned about maintaining smooth cash flow while financing this capital expenditure.
Explain one advantage and one disadvantage of using retained profits to finance capital expenditure at Bloom Interiors.
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Bloom Interiors is a small business specialising in designing and manufacturing custom furniture. The company is well-regarded for its craftsmanship and uses high-quality materials. With increasing demand for sustainable furniture, Bloom is considering upgrading its machinery to enhance production capacity and reduce waste.
The estimated cost for the new machinery is £50,000, which represents a significant investment for the company. To fund this, Bloom is evaluating whether to use retained profits or apply for a short-term bank overdraft. Management is particularly concerned about maintaining smooth cash flow while financing this capital expenditure.
Describe two factors Bloom Interiors should consider when deciding on a financing option.
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Grace & Glow Day Spa is a boutique spa offering luxury treatments in a serene setting. Recently, the spa has gained popularity, resulting in increased demand for its services. To accommodate more customers, the owner is considering expanding the spa by renovating an unused section of the building and purchasing additional equipment.
The estimated cost for the expansion is £25,000. To finance this revenue expenditure, Grace & Glow is debating between using a trade credit arrangement with suppliers or applying for a short-term loan from a local bank. The owner is particularly concerned about maintaining the spa’s premium image while managing cash flow effectively.
Analyse two advantages and one disadvantage of using a short-term bank loan for Grace & Glow’s expansion.
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Grace & Glow Day Spa is a boutique spa offering luxury treatments in a serene setting. Recently, the spa has gained popularity, resulting in increased demand for its services. To accommodate more customers, the owner is considering expanding the spa by renovating an unused section of the building and purchasing additional equipment.
The estimated cost for the expansion is £25,000. To finance this revenue expenditure, Grace & Glow is debating between using a trade credit arrangement with suppliers or applying for a short-term loan from a local bank. The owner is particularly concerned about maintaining the spa’s premium image while managing cash flow effectively.
Describe two risks Grace & Glow Day Spa might face if the expansion is not financed effectively.
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Vibrant Vistas Photography is a small business offering professional photography services for weddings and events. The company recently secured several high-profile bookings, increasing demand for advanced equipment and additional staff to meet client expectations.
To finance these expenses, Vibrant Vistas is considering using revenue from pre-booked events or applying for a hire purchase agreement to acquire new equipment. The owner is particularly concerned about managing short-term cash flow while ensuring the business can deliver high-quality services.
Explain one advantage and one disadvantage of using revenue from pre-booked events to finance equipment purchases at Vibrant Vistas Photography.
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Vibrant Vistas Photography is a small business offering professional photography services for weddings and events. The company recently secured several high-profile bookings, increasing demand for advanced equipment and additional staff to meet client expectations.
To finance these expenses, Vibrant Vistas is considering using revenue from pre-booked events or applying for a hire purchase agreement to acquire new equipment. The owner is particularly concerned about managing short-term cash flow while ensuring the business can deliver high-quality services.
Describe two advantages to Vibrant Vistas Photography of leasing equipment instead of purchasing it outright.
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