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Business Ventures (Forms of Ownership and Investment) The criteria for the success or failure of private companies are more appealing than that of partnerships - NSC Business Studies - Question 5 - 2020 - Paper 2
Question 5
Business Ventures (Forms of Ownership and Investment) The criteria for the success or failure of private companies are more appealing than that of partnerships. Man... show full transcript
Worked Solution & Example Answer:Business Ventures (Forms of Ownership and Investment) The criteria for the success or failure of private companies are more appealing than that of partnerships - NSC Business Studies - Question 5 - 2020 - Paper 2
Step 1
Outline the disadvantages of a partnership.
Answer
While partnerships can bring together multiple perspectives and resources, they also have several disadvantages:
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Unlimited Liability: Each partner can be held personally liable for the debts and obligations of the partnership, which can risk personal assets.
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Potential for Disputes: Differences in opinion among partners can lead to conflicts, which may disrupt business operations and decision-making.
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Limited Lifespan: The partnership may dissolve upon the death or withdrawal of a partner, making continuity a challenge.
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Restrictive Decisions: Significant decisions generally require unanimous consent, potentially causing delays in business strategy and growth.
Step 2
Explain how the following criteria could contribute to the success and/or failure of a private company:
Answer
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Management: Effective management is crucial for running operations smoothly, delegating tasks, and making strategic decisions. Poor management can lead a company to failure through misallocation of resources and poor strategic planning.
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Legislation: Compliance with laws and regulations is essential. Failure to adhere can result in legal penalties or the shutdown of the business, impacting its success.
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Capital: Sufficient capital is necessary for business operations and growth. Insufficient funding can stifle expansion and limit opportunities, while excess capital can lead to mismanagement.
Step 3
Discuss FOUR factors that should be considered when making investment decisions.
Answer
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Risk Assessment: Understanding the potential risks associated with an investment is crucial for informed decision-making. This includes market risks and the possibility of loss.
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Liquidity: Investors should evaluate how easily an asset can be converted into cash if needed. High liquidity is often favored to ensure funds are readily available.
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Investment Horizon: The length of time one plans to invest should align with the investment's risk profile and expected returns. Long-term investments may bear higher risk but can be more rewarding.
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Market Trends: Keeping abreast of market fluctuations and trends is important for making timely decisions. This may include changes in demand, technology, and consumer behavior.
Step 4
Advise businesses on the impact of fixed deposits as a form of investment.
Answer
Fixed deposits (FDs) can be a secure investment choice for businesses, offering predictable returns with lower risk. They can help in:
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Capital Preservation: FDs safeguard capital while earning interest, making them an ideal option for risk-averse businesses.
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Liquidity Management: By investing in FDs with varying maturity dates, businesses can manage cash flows effectively.
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Financial Planning: Fixed returns aid in budgeting and financial forecasting, providing a clearer picture of future financial health. However, businesses must be cautious of the opportunity costs associated with tying up finances in fixed deposits.