Kestrel Coaches operates 140 coaches from depots in the North West, running school contracts, private hire and a growing network of scheduled express routes between cities. Revenue last year was £38m and operating profit £2.3m.
Its balance sheet shows non-current liabilities of £6.0m and total equity of £4.0m. Fuel is about 22% of costs. The government has announced a rise in fuel duty, and several cities are introducing clean air zones that will charge older diesel coaches.
Kestrel is considering buying four electric coaches for its Manchester–Liverpool route at a total cost of £1.2m. Fuel and maintenance savings are forecast at £300 000 a year for five years. Five-year discount factors at 5% are 0.952, 0.907, 0.864, 0.823 and 0.784.
Kestrel employs 260 drivers; 52 left last year. There is a national shortage of coach drivers and the union is asking for a 9% pay rise. Kestrel recently introduced online booking with dynamic pricing on express routes. Economists warn that the UK may enter a mild recession.
Case study: Kestrel Coaches Ltd
Kestrel Coaches operates 140 coaches from depots in the North West, running school contracts, private hire and a growing network of scheduled express routes between cities. Revenue last year was £38m and operating profit £2.3m.
Its balance sheet shows non-current liabilities of £6.0m and total equity of £4.0m. Fuel is about 22% of costs. The government has announced a rise in fuel duty, and several cities are introducing clean air zones that will charge older diesel coaches.
Kestrel is considering buying four electric coaches for its Manchester–Liverpool route at a total cost of £1.2m. Fuel and maintenance savings are forecast at £300 000 a year for five years. Five-year discount factors at 5% are 0.952, 0.907, 0.864, 0.823 and 0.784.
Kestrel employs 260 drivers; 52 left last year. There is a national shortage of coach drivers and the union is asking for a 9% pay rise. Kestrel recently introduced online booking with dynamic pricing on express routes. Economists warn that the UK may enter a mild recession.
1(a)2 marks
State what is meant by gearing.
1(b)4 marks
Calculate Kestrel's gearing and comment on the result.
1(c)6 marks
Explain two effects of the rise in fuel duty on Kestrel.
1(d)9 marks
Analyse the impact of clean air zones on Kestrel.
1(e)12 marks
Calculate the net present value of the electric coaches and assess whether Kestrel should buy them.
2(a)4 marks
Calculate Kestrel's labour turnover and its staff retention rate.
2(b)6 marks
Explain how the shortage of drivers could affect Kestrel's operations.
2(c)9 marks
Analyse the benefits of online booking and dynamic pricing for Kestrel.
2(d)12 marks
Assess how Kestrel should respond to the union's request for a 9% pay rise.
2(e)16 marks
Evaluate whether Kestrel should focus on growth or on improving profitability over the next two years, given the risk of a recession.
Finished?
Answer every question to finish (10 left), or finish when the time’s up.
Score 0 / 80 · 0 of 10 marked
This paper is written by Plasmo in the style of the OCR A-Level Business exam. It is not a past paper and is not produced or endorsed by the exam board.
OCR A-Level Business Mock Exam: Paper 2: The UK business environment | Plasmo