Paper 2: Business activities, decisions and strategy

Section A — Extract C: Brightwater Foods Ltd

Brightwater Foods makes chilled ready meals in Norfolk for three supermarket chains. In 2025:

Item	£m
Revenue	12.0
Cost of sales	7.2
Other operating expenses	3.6

It plans to launch a premium range. Each meal would sell to supermarkets for £5.00 with variable costs of £3.00. Extra fixed costs would be £600 000 a year. It expects to sell 400 000 meals in the first year. The launch needs £2.5 million for new equipment. The owners are considering a bank loan or selling a 30% stake to a venture capital firm. Brightwater holds two weeks of ingredient stock. Waste is 6% of ingredients. The operations director wants to introduce just-in-time (JIT) ordering and lean production. Interest rates have risen from 3.5% to 5.25% and food inflation is 7%.

Section B — Extract D: Northwind Hotels plc

Northwind owns 22 mid-priced hotels in northern England. Its objective is to grow revenue by 30% in five years. It is considering refurbishing its Edinburgh hotel at a cost of £2.0 million. Forecast net cash flows are:

Year	1	2	3	4	5
Net cash flow (£m)	0.5	0.6	0.7	0.8	0.8

An alternative is a new marketing campaign. Option A (social media) costs £1.5m with a 60% chance of £3m extra profit and 40% chance of £1m. Option B (TV) costs £1.6m with a 50% chance of £4m and 50% chance of £0.5m. Northwind has also received an offer to take over Stayra, a chain of 12 budget hotels with a strong online booking brand but a very different, informal culture. Staff at Stayra are worried about job losses.

Section A — Extract C: Brightwater Foods Ltd

Brightwater Foods makes chilled ready meals in Norfolk for three supermarket chains. In 2025:

Item	£m
Revenue	12.0
Cost of sales	7.2
Other operating expenses	3.6

1(a)4 marks

Using Extract C, calculate Brightwater's gross profit margin and operating profit margin for 2025.

1(b)6 marks

Calculate the break-even output for the premium range and the margin of safety at the forecast sales, and explain one limitation of break-even analysis for Brightwater.

1(c)8 marks

Analyse the advantages to Brightwater of using a bank loan rather than venture capital to finance the new equipment.

1(d)12 marks

Assess the likely impact of rising interest rates and 7% food inflation on Brightwater.

1(e)20 marks

Evaluate whether Brightwater should introduce just-in-time stock control and lean production.

Section B — Extract D: Northwind Hotels plc

Year	1	2	3	4	5
Net cash flow (£m)	0.5	0.6	0.7	0.8	0.8

2(a)4 marks

Using Extract D, calculate the payback period and the average rate of return (ARR) for the refurbishment.

2(b)6 marks

Explain which part of the Ansoff matrix the takeover of Stayra represents.

2(c)8 marks

Use decision tree analysis to analyse which marketing option Northwind should choose.

2(d)12 marks

Assess whether taking over Stayra is the best way for Northwind to achieve its growth objective.

2(e)20 marks

Evaluate the importance of managing organisational culture and stakeholder concerns if Northwind takes over Stayra.

Finished?

Answer every question to finish (10 left), or finish when the time’s up.

Score 0 / 100 · 0 of 10 marked

This paper is written by Plasmo in the style of the Edexcel A-Level Business exam. It is not a past paper and is not produced or endorsed by the exam board.

Edexcel A-Level Business Mock Exam: Paper 2: Business activities, decisions and strategy | Plasmo