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Using the data in Appendix C, calculate the following ratios for Drake Hotels PLC in 2020. [6 marks] Marks for this question: AO1 = 2, AO2= 4 Current ratio 0.83:1 or 0.83 (3 marks) 3 marks for correct answer 1 mark for correct selection of current asset £15m 1 mark for correct selection of current liabilities £18m Formula alone = 1 mark Gearing 62.22% (3 marks) 3 marks for correct answer 1 mark for correct selection of non-current liabilities £280m 1 mark for correct calculation of capital employed £450m Formula alone = 1 mark OFR applies.MARK SCHEME – A-LEVEL BUSINESS – 7132/2 – JUNE 2020 7 0 1 . 2 Use Appendix B to explain one reason why Drake Hotels PLC has used sensitivity analysis for the investment proposal. [4 marks] Marks for this question: AO1 = 2, AO2 = 2 Level The student will typically demonstrate: Marks 3 A reasonable response overall that focuses on many of the demands of the question. • Explains one reason why Drake Hotels uses sensitivity analysis for this investment proposal. 4 2 A reasonable response overall that focuses on some of the demands of the question. • Explains one reason why a business might use sensitivity analysis when making a decision. 3–2 1 A limited response overall that focuses on a few demands of the question. • Some understanding of the sensitivity analysis. 1 The demands of the question are: • explain one reason sensitivity analysis • is used by Drake Hotels for this investment proposal. Indicative content: • sensitivity analysis considers what would happen if there were changes in the initial assumptions behind a calculation • in this case the business is considering the effect of a change in exchange rates or overseas income which would change the likely net inflows and therefore change the expected values of ARR and net present value.MARK SCHEME – A-LEVEL BUSINESS – 7132/2 – JUNE 2020 8 0 1 . 3 Analyse the challenges the Human Resource manager faces as a result of the patterns of room bookings in Appendix E. [9 marks] Marks for this question: AO1 = 2, AO2 = 3, AO3 = 4 Level The student will typically demonstrate: Marks 3 A good response overall that focuses on many of the demands of the question. Provides an answer to the question set that: • demonstrates a depth and range of knowledge and understanding of issues in the question • demonstrates analysis which is well-developed and is applied effectively to the context. 7–9 2 A reasonable response overall that focuses on some of the demands of the question. Provides an answer to the question set that: • demonstrates a limited knowledge and understanding of a range of issues in the question or a good knowledge and understanding of relatively few issues in the question • demonstrates analysis which is developed and is applied to the context. 4–6 1 A limited response overall with little focus on the demands of the question. Provides an answer to the question set that: • demonstrates a limited range and depth of knowledge and understanding of issues in the question • demonstrates analysis with little development and with mainly descriptive application to the context. 1–3 The demands of the question are: • to analyse challenges the Human Resources manager might face • as a result of the patterns of room bookings in Appendix E. Indicative content: • the data in Appendix E shows that room bookings vary throughout the year; the business is seasonal as you might expect for a hotel • this seasonality will affect the HR manager because staffing levels will need to vary. HR may want to employ people on temporary contracts (eg only over summer) so that the hotel is not committed to salaries when staff are not needed. The challenge will be to recruit people at certain times of the year • the data also shows variation during a week. To match demand requirements the challenges for the HR manager will be to vary the labour requirement; in this case wanting part time staff on Friday and Saturdays • challenges might include getting well trained staff for short periods of time; getting employee engagement if only there for part of the week or part of the year. Allow other relevant arguments.MARK SCHEME – A-LEVEL BUSINESS – 7132/2 – JUNE 2020 9 0 1 . 4 Using the data, recommend whether Drake Hotels PLC should go ahead with the proposed investment. Justify your answer. [16 marks] Marks for this question: AO1 = 2, AO2 = 3, AO3 = 4, AO4 = 7 Level The student will typically demonstrate: Marks 4 An excellent response overall that is fully focused on the key demands of the question. Provides an answer to the question set that: • demonstrates a depth and range of knowledge and understanding that is precise and well-selected in relation to issues in the question • demonstrates analysis throughout which is well-developed, is applied effectively to the context and considers a balanced range of the issues in the question • makes judgements or provides solutions which are built effectively on analysis, show balance and have a clear focus on the question as a whole throughout. 13–16 3 A good response overall that focuses on many of the demands of the question. Provides an answer to the question set that: • demonstrates a depth and range of knowledge and understanding of issues in the question • demonstrates analysis which is well-developed, applied effectively to the context and considers a range of issues in the question • makes judgements or provides solutions which are built on analysis, show balance and address the question as a whole throughout. 9–12 2 A reasonable response overall that focuses on some of the demands of the question. Provides an answer to the question set that: • demonstrates a limited knowledge and understanding of a range of issues in the question or a good knowledge and understanding of relatively few issues in the question • demonstrates analysis which is developed, applied to the context and considers some of the issues in the question • makes judgements or provides solutions which are built on analysis, but lack balance and not fully focused on the question as a whole. 5–8 1 A limited response overall with little focus on the demands of the question Provides an answer to the question set that: • demonstrates a limited range and depth of knowledge and understanding of issues in the question • demonstrates analysis with little development, mainly descriptive application to the context and considers a limited number of issues in the question • makes judgements or proposes solutions which have limited links to analysis or limited focus on the question as a whole. 1–4MARK SCHEME – A-LEVEL BUSINESS – 7132/2 – JUNE 2020 10 The demands of the question are: • use the data to analyse arguments for and against the proposed investment • to recommend whether Drake Hotels should go ahead with the proposed investment into the new hotel. Indicative content: • the hotel has a 12% ARR which is higher than the cost of borrowing (8%) and much higher than its current ROCE (profit is £18m; Capital employed £450 m; ROCE 4%) • the project has a positive NPV showing that the present value of its discounted returns are higher than the initial costs • there is a 30% probability of income overseas being even higher which, given that demand is income elastic (+2) and that 70% of customers are from overseas, would benefit the hotel • Mary has experience of upmarket (luxury) hotels; she was brought in to increase profitability and this seems to achieve this objective. However, need to consider: • finance - gearing is already relatively high at 62.2% and if the business borrowed an additional £20m this would rise • there is 20% of an unfavourable exchange rate change which would probably decrease overseas visitors and reduce the returns • move from budget to premium; will this cause an issue with branding and perception? • quality of data- is the new Chief Executive eager to show they have a good plan? Mary’s background is marketing; need to ensure the financial data is right. Overall, there seems a very strong case for the new hotel; there are finance issues but if forecasts are right the returns will cover interest payments. We may just want to check her/his projections before finally deciding. Accept other relevant answers. Own figure rule in relation to use of ratios