OxfordAQA A-Level Business: The nature and purpose of business and Types of business ownership (9625/9725) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover sections 3.1.1.1 The nature and purpose of business and 3.1.1.2 Types of business ownership of the OxfordAQA International AS and A-level Business specifications 9625 (AS exams May/June 2019 onwards) and 9725 (AS exams May/June 2027 onwards). Questions 4 and 8 use 9625 content. Questions 5, 6 and 9 use 9725 content. All businesses are invented.

Links: study guide · revision notes · course hub · printable checklist · free 10-minute diagnostics · earlier practice paper

Questions

1. State two non-financial reasons why people set up in business. [2]

2. Leyla has £20,000 to spend. She can buy a delivery van or a second oven for her bakery, and she buys the van. Define opportunity cost and identify Leyla’s opportunity cost. [3]

3. Fordwych Freight plc has 5,000,000 ordinary shares in issue. It pays a total dividend of £850,000. The share price is £2.50.

(a) Calculate the dividend per share. [2] (b) Calculate the dividend yield. [2] (c) Calculate the market capitalisation. [2]

4. Ploverdale Candles must choose how to raise output. Option C is a new melting line costing £35,000. It has a 0.6 chance of returning £70,000 and a 0.4 chance of returning £20,000. Option D is second-hand equipment costing £18,000. It has a 0.5 chance of returning £48,000 and a 0.5 chance of returning £30,000.

(a) Calculate the net gain of each option. [4] (b) Justify which option Ploverdale should choose. [4]

5. Rukmini’s objective for her bakery is “to be the best-known bakery in the district as soon as possible”.

(a) Explain two reasons why this is not a SMART objective. [2] (b) Rewrite it as a SMART objective. [2]

6. Leyla and Rohan run Wydcombe Print Studio as a partnership. Leyla does the design work and Rohan runs the presses. Analyse one advantage and one disadvantage of their business form. [4]

7.

(a) Identify the sector (primary, secondary or tertiary) of a fish farm, a furniture workshop and a dental clinic. [3] (b) Explain what is meant by a public sector organisation. [2]

8. Explain two ways a government might support start-ups, and one reason why many start-ups fail. [6]

9. Anneke is writing a business plan for a new catering firm.

(a) State two key elements of a business plan. [2] (b) Analyse one benefit and one limitation of the plan to Anneke. [4]

10. Wickersley Textiles plc has 3,000,000 shares. Its share price falls from £4.00 to £3.20.

(a) Calculate the fall in market capitalisation. [2] (b) Explain two influences on a company’s share price. [4]

11. Dilnoza owns Harnscar Bikes, a sole trader business that made a profit of £46,000 last year. She wants to open a second shop costing £80,000. She has £30,000 of savings. The bank will lend the rest only if she uses her house as security. Her cousin offers to pay £50,000 for 40% of the shares if she converts the business to a private limited company. Evaluate whether Dilnoza should convert. [10]

12. Skerrowmoor Dairy is a family-run business with 14 employees. The family plan to buy milking equipment for £90,000. The business would then need 9 employees, and each employee costs £24,000 a year.

(a) Explain one advantage and one disadvantage of being a family business when making this decision. [4] (b) Evaluate the likely impact of the plan on the stakeholders and recommend whether the family should go ahead. [8]

Answers

1. Any two, 1 mark each, from: independence or being your own boss; using a skill or following a passion; flexible working hours; helping others or the community [1] [1]. [2] Examiner insight: Earning more money is a financial reason, so it would not answer a question asking for non-financial ones.

2. Opportunity cost is the value of the best alternative forgone when a choice is made [1]. Leyla’s opportunity cost is the second oven [1], meaning the extra output or sales it would have brought [1]. [3] Examiner insight: A definition on its own is unlikely to earn the application mark. Name the actual alternative that was given up.

3. (a) Dividend per share = 850,000 / 5,000,000 [1] = 17p (£0.17) [1]. (b) Yield = 0.17 / 2.50 x 100 [1] = 6.8% [1]. (c) Market capitalisation = 2.50 x 5,000,000 [1] = £12,500,000 [1]. [6] Examiner insight: Keep pence and pounds consistent. Dividing 17 by 2.50 is wrong by a factor of 100, and writing the formula first shows your method.

4. (a) EV of C = 0.6 x 70,000 + 0.4 x 20,000 = £50,000 [1]; net gain = 50,000 - 35,000 = £15,000 [1]. EV of D = 0.5 x 48,000 + 0.5 x 30,000 = £39,000 [1]; net gain = 39,000 - 18,000 = £21,000 [1]. (b) D has the higher net gain, by £6,000 [1]. In the worst case D still gains £12,000 (30,000 - 18,000), whereas C loses £15,000 (20,000 - 35,000) [1]. The probabilities are only estimates and the figures ignore non-financial factors such as quality [1]. Judgement: choose D, because it is better on both expected net gain and worst case, unless Ploverdale has strong evidence that demand is much higher than 0.6 [1]. [8] Examiner insight: An answer that stops at expected value, without subtracting the cost, is comparing the wrong figures. A justification gains more when it weighs the worst case as well as the average.

5. (a) It is not measurable, because “best-known” has no number to check [1]. It has no deadline, because “as soon as possible” is not a time target [1]. (b) For example: raise recognition in a local household survey from 18% to 30% [1] by 31 December 2027, with the marketing manager responsible [1]. [4] Examiner insight: A rewrite gains credit by containing a measure and a deadline, not by adding “quickly” to the original.

6. Advantage: the partners bring different skills, with Leyla on design and Rohan on production [1], so the studio offers a fuller service [1]. Disadvantage: partners usually have unlimited liability [1], so if Rohan agrees a large debt for the studio, Leyla’s personal assets could be used to pay it [1]. [4] Examiner insight: “Analyse” means a chain of reasoning. State the point, then say why it matters for this studio rather than for partnerships in general.

7. (a) Fish farm: primary [1]. Furniture workshop: secondary [1]. Dental clinic: tertiary [1]. (b) A public sector organisation is owned and run by government [1], usually to provide a public service rather than to make a profit for owners [1]. [5] Examiner insight: Do not confuse public sector with public limited company. A plc is owned by private shareholders and is part of the private sector.

8. Two ways, 2 marks each, for example: grants or low-interest loans [1] that lower the cost of finance for a start-up [1]; advice and training [1], which improves skills in areas where the founder lacks experience [1]. One reason for failure: poor cash-flow control [1], because it runs out of cash to pay suppliers and wages [1]. [6] Examiner insight: Each “explain” point needs the support or reason plus its effect. A bare list of types of help leaves the development unearned.

9. (a) Any two from: ownership; objectives; target market and market analysis; competitor analysis; unique selling point; financial analysis [1] [1]. (b) Benefit: writing the plan forces Anneke to analyse her target market and competitors [1], so weaknesses show up before she spends money [1]. Limitation: the plan depends on forecasts of sales and costs [1], which may prove wrong [1]. [6] Examiner insight: Tie the benefit and limitation to a catering firm, for example bookings that are hard to forecast.

10. (a) Before: 4.00 x 3,000,000 = £12,000,000. After: 3.20 x 3,000,000 = £9,600,000 [1]. Fall = £2,400,000 [1]. (b) Any two, 2 marks each, for example: lower profit or weaker profit forecasts [1] make the shares less attractive, so more people sell than buy and the price falls [1]; a rise in interest rates [1] makes saving more attractive, so some investors sell shares to move their money [1]. [6] Examiner insight: Link every influence to the demand for or supply of the shares. “The economy” alone shows no reasoning.

11. Points for converting: as a sole trader Dilnoza has unlimited liability, so her house is at risk if the second shop fails [1]; a private limited company gives limited liability [1]. Her £30,000 plus the cousin’s £50,000 gives exactly the £80,000 needed with no bank loan [1]. Against: the cousin would own 40% and take 40% of dividends [1], although Dilnoza keeps 60% and so majority control [1]. The cousin could disagree with her decisions [1], and a company has more formal duties [1]. Alternative: borrowing keeps all profit but needs security and interest [1]. Judgement: converting looks better, because it protects her home on an untested second shop [1], but it depends on how far she trusts her cousin and how confident she is of demand [1]. [10] Examiner insight: Evaluation gains more when both routes are compared using this owner’s figures and the choice states what it depends on.

12. (a) Advantage: family members share values and a long-term view [1], so they may accept a large outlay that pays back over many years [1]. Disadvantage: the family may disagree, or may be reluctant to make relatives or long-serving staff redundant [1], which can delay a decision [1]. (b) Annual wage saving = 5 x 24,000 = £120,000 [1]. Owners gain from lower costs and higher profit, but must find £90,000 and bear the risk the equipment fails [1]. Five employees lose their jobs and the rest may face more pressure [1]. The community loses local jobs and spending [1]. The supplier gains an order, and customers may see consistent quality [1]. Creditors will want reassurance they can be repaid [1]. Judgement: go ahead if the family can fund it without risking the business, since the saving is large relative to cost [1], but it depends on how the redundancies are handled and the effect on the firm’s local reputation [1]. [12] Examiner insight: Stakeholder answers gain from naming the group, the change and the effect on it. One word per group stays at description.

Where marks are usually lost

• Stopping a decision-tree answer at expected value, without subtracting the cost of each option.
• Mixing pence and pounds in dividend and yield calculations.
• Giving generic advantages of a business form with no link to the case.
• Writing “limited liability” without saying that the shareholder’s loss is limited to the amount invested.
• Treating a plc as public sector.
• Listing stakeholders instead of explaining how the decision changes things for each.
• Ending an “evaluate” or “justify” answer with a choice but no reason or condition.

Frequently asked questions

Is a plc part of the public sector? No. A public limited company is owned by its shareholders and belongs to the private sector; public sector organisations are government-owned and government-run. Treating a plc as public sector is a common error.

What is the most common slip in decision tree questions? Stopping at expected value without subtracting the cost of each option to find the net gain. Compare net gains when options cost different amounts.

Which OxfordAQA sections do these questions cover? They cover sections 3.1.1.1 The nature and purpose of business and 3.1.1.2 Types of business ownership of OxfordAQA International AS and A-level Business, for both 9625 and 9725.

Next steps

• Check formulas in the revision notes.
• Re-read the study guide.
• Tick off points in the printable checklist and visit the course hub.
• Try the free 10-minute diagnostics.
• Book a free trial class.

Official syllabus

OxfordAQA International AS and A-level Business (9625), Version 3.1, and OxfordAQA International AS and A-level Business (9725), Version 1.1, sections 3.1.1.1 and 3.1.1.2. Publisher: OxfordAQA.