Question 1

Write a report that applies the business economics concepts of demand and supply including elasticity of demand, types of goods and the macroeconomic concept of inflation to the following statement by the UK Department for Environment and Rural Affairs – “The potato price index was 27% higher in March 2017 compared to March 2016. Grower confidence continues to limit supply and with yields down on the previous year the potato index rose 3.2% between February and March 2017 compared to a 9.6% increase between February and March the previous year” Your answer should include both the theory of these concepts and hypothetical examples. (600 words) (20 marks).

Question 2

a. Choose one financial statement from the two on GSM Learn, and calculate five (5) financial ratios, one each from the following categories– liquidity ratio, market value ratio, asset management ratio, debt management ratio and profitability ratio for the year 2015. Then analyze these ratios either by comparing it to the 2015 figures for a similar company, or the 2014 figures for the same company, to determine the health of the company in 2015 by deciding if each ratio is either, good or poor. In your answer, identify the sources of your financial statements. (8 marks). [Hint: Financial ratios.]

b. Fanta deposits £400 at the end of the first year, £300 at the end of the second year, and £250 at the end of the third year. If the account earns 5.5 percent interest each year, calculate the future value of this uneven cash flow stream (6 marks) [Hint: Future Value.]

c. Two projects being considered are mutually exclusive and have the following projected cash flows:

Year Project A Project B

0 −$50,000 −$50,000

1 25,000 0

2 15,625 0

3 5,000 0

4 12,000 0

5 32,000 99,500

If the required rate of return on these projects is 10.25 percent, which would be chosen and why? Show your calculations/explanations. (6 marks) [Hint: Net Present Value]

(100 words) (20 marks total)