IGCSE Enterprise: Specimen Questions with Answers 25 - 26 of 49

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Passage

Case Study: 4

Jones and Little (2000) present a critical analysis of the role of partnership in new public management in the UK, in a paper called Rural challenges: partnership and new rural governance. The authors note that: “whatever definition is favored, partnerships or networks between the public, private and voluntary sectors are an important part of what constitutes novel forms of governance” in the UK. The authors question the uncritical promotion of this form of governance, which emerged from the “traumatic neo-liberal restructuring of urban politics in the 1980՚s” and its transfer to rural areas, where it brings the requirement for rural organizations and In the field of public policy, partnership is often viewed as the second generation of efforts to bring competitive market discipline to bear on government operations (after the first generation efforts of privatization) . The authors argue that contemporary discussions of partnership approaches lead to submergence of key issues about power relations, accountability, public spending levels, and equitable resource allocation in the systematic addressing of the needs of rural communities. They question the culture of partnership and its suitability as a means of securing effective rural regeneration, arguing for greater scrutiny to be paid to its increased political currency and practical applications.

In Government – non-profit partnership: A defining framework, Brinkerhoff (2002a) notes that partnership has emerged as an increasingly popular approach to privatization and government – non-profit relations. However, there is no consensus on what partnership means, and its practice varies. The author provides a useful review of partnership literatures and refines the definition of partnership using the concepts of ‘mutuality’ and ‘organizational identity.’ These concepts are used as the two axes of an inter-organizational relationship matrix, in which partnership is distinguished from three other basic relationship types: contracting, extension, and co-option or gradual absorption.

Question 25 (12 of 12 Based on Passage)

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Short Answer▾

Explain the term-

i. Franchise

ii. Co-operative

Explanation

Franchise: Franchising is an arrangement between two parties where the first party (the franchiser) grants the second party (the franchisee) the right to utilize its business processes, produce and marketing of a good or service or use of its trademark. The franchiser collects a one-time payable franchisee fee as well as a percentage of sales from the franchiser. Franchise has a better access to talent, easy expansion of capital and minimized growth risk.

A co-operative society is a voluntary association of persons who join for mutual help. They are driven by the need to protect their economic interests in the face of possible exploitation at the hands of middleman obsessed with a desire to earn greater profits.

  • A minimum of ten persons are required to form a cooperative society.
  • The registration of cooperative society is compulsory
  • The capital is contributed by the members only in the form of share capital
  • The cooperative organization can raise loans also from banks.

Passage

Case Study: 3

Fazzari and Petersen (1993) argue that investment in working capital is sensitive to cash flow. Their findings show that firms that have larger capacity to generate internal finance have higher current asset levels. Chiou et al. (2006) also provide evidence from Taiwan to point to the influence of cash flow on investment in working capital and suggest that firms with greater cash flow have higher investment in working capital. Hill et al. (2010) show that firms with available internal cash flow capacity and capital market access invest more in working capital. By contrasting the two spectrums of researches, it can be suggested that the level of investment in working capital depends on the cash flow availability of firms (Fazzari et al. , 1988) . As argued by Banos-Caballero et al. (2014) , a positive working capital level needs financing, and therefore cash flow availability plays an important role in the relationship between WCM and firm performance.

These positive and negative influences of NWC on performance suggest that investment in working capital involve a trade-off (Baños-Caballero et al. , 2012; Deloof, 2003) . Therefore, to test the effect of cash flow on the relationship between NWC and performance, I estimate a non-linear regression similar to that of Banos-Caballero et al. (2012) and Banos-Caballero et al. (2014) . In this regard, it can be argued that whilst firms with limited cash flow should strive to achieve a reduction in working capital investment to avoid the need for expensive external finance; on the contrary, firms with available internal cash flow should increase investment in working capital in order to improve performance. Banos-Caballero et al. (2014) conclude in their research that managers should avoid negative effects on firm performance because of additional financing expenses. Internal cash flow can be used to finance investments in working capital without the need to raise costly external finance (Autukaite and Molay, 2011) . Banos-Caballero et al. (2014) examined the functional form of the relation between investment in working capital and corporate performance by taken into account financial constraint and found a convex relationship between investment in working capital and firm performance.

Question 26 (1 of 12 Based on Passage)

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Short Answer▾

Cash flow availability plays an important role in the relationship between WCM and firm performance. Use this statement to answer the question below-

Give two advantages and disadvantage of trade credit.

Explanation

Trade credit refers to the credit extended by the suppliers of goods in normal course of business. It gives the business 1 - 3 months to pay after purchasing it supplies.

Advantages

  • Useful as the company can sell its finished product and sell it before having to pay the suppliers.
  • It is easy and automatic source of finance for the firms.

Disadvantages

  • The supplier may refuse to give discounts or completely stop trade with the business if payments are not met.
  • Suppliers see smaller, new business as unreliable, therefore they might not allow them to pay on credit.

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