™

Cambridge IGCSE

BUSINESS STUDIES 0450/22

*2035001524*

Paper 2 Case Study May/June 2023

1 hour 30 minutes

You must answer on the question paper.

You will need: Insert (enclosed)

INSTRUCTIONS
• Answer all questions.
• Use a black or dark blue pen. You may use an HB pencil for any diagrams or graphs.
• Write your name, centre number and candidate number in the boxes at the top of the page.
• Write your answer to each question in the space provided.
• Do not use an erasable pen or correction fluid.
• Do not write on any bar codes.
• You may use a calculator.

INFORMATION
• The total mark for this paper is 80.
• The number of marks for each question or part question is shown in brackets [ ].
• The insert contains the case study.

This document has 12 pages. Any blank pages are indicated.

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1 (a) Explain four characteristics needed for an entrepreneur to be successful.

Risk-taking
Characteristic 1: ................................................................................................................
Entrepreneurs start up the business using their own capitals, and they have to be aware of the risk that
...........................................................................................................................................
the business might fail and they might lose all their capital.
...........................................................................................................................................

...........................................................................................................................................
Good communication skills
Characteristic 2: ................................................................................................................
Entrepreneur needs to employ employees as well as negotiate and communicate with stakeholders to
...........................................................................................................................................
make sure the business has what it needs.
...........................................................................................................................................

...........................................................................................................................................
Leadership
Characteristic 3: ................................................................................................................
Entrepreneur needs to hire employees. The business works based on the capital of the entrepreneur,
...........................................................................................................................................
and the employees will be subordinates of the entrepreneur. Therefore, the entrepreneurs needs
leadership to make the employees listen to their orders and work in the way they want the business to
...........................................................................................................................................
work.

...........................................................................................................................................
Decision-making
Characteristic 4: ................................................................................................................
Entrepreneurs are the ones that owns the business, and therefore they make all decisions over their
...........................................................................................................................................
business, such as whether to expand or not, or to downsize the workforce, etc. Therefore, they need
decision making skills to make the right decision in different situations so it suits the business best.
...........................................................................................................................................

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(b) Consider the advantages and disadvantages of starting up ET as either an unincorporated

business or as a limited company. Which should Zane and Zaara choose? Justify your answer.
Zane and Zaara are starting up the theatre. They will manage the business
Unincorporated business: .................................................................................................
between the 2 of them. Therefore, they can decide easier and quicker as
there won't be many conflicts. Also, they can share more profits as there's
...........................................................................................................................................
only 2 of them who owns the theatre. However, starting up the theatre is
very expensive. They need to build a theatre, and hire land, and only 2 of
...........................................................................................................................................
them might not have enough capital and then they might need a loan,
which means they'll have to repay with interest in the future.
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................
Zane and Zaara are planning to start up the business together. However, costs for
Limited company: .............................................................................................................
building the theatre is very expensive. If they don't want to pay loans which would
eventually mean they'll have to repay with interest in the future, they might want to
...........................................................................................................................................
become a limited company to sell shares to gain capital. However, they believe that
helping the community is as important as being successful entrepreneurs. If they sell
...........................................................................................................................................
shares to the public and loses some of the control over the business, the
shareholders might have a different view and might focus on making profit rather than
...........................................................................................................................................
helping the community.
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................
Zane and Zaara should start up as a limited company. The costs for option 1 are
Recommendation: ............................................................................................................
$1210, which is $210 higher than revenue. For option 2, costs are $2240, which is
sufficient to make a profit. However, the profit is low, therefore they might need to
...........................................................................................................................................
take a bank loan to use for working capital. Moreover, starting up a business and to
hire employee and building a theatre needs a lot of capital. If Zane and Zaara
...........................................................................................................................................
doesn't want to take a bank loan, capital from shares would be the best option as
they won't have to return with interest rate.
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

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2 (a) Explain one business objective for ET and one other objective that a social enterprise like
Daycare might have.

Making profit
Business objective for ET: ................................................................................................

...........................................................................................................................................

The theatre will have 100 seats, and if they sell all, they'll have high revenue. Also, the
Explanation: ......................................................................................................................
costs for actors should be kept low. Zane and Zaara owns the business together as a
partnership. This means they'll need to have to share the profit between the 2. Moreover,
...........................................................................................................................................
they'll need retained profit to pay salary for the actors, even when the seats are not all
sold and costs is higher than revenue on some months. Therefore, ET will need profit to
...........................................................................................................................................
help them survive.

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

Good service for the community

Objective for a social enterprise like Daycare: .................................................................

...........................................................................................................................................

Explanation: ......................................................................................................................
Daycare might want to take care of the children for free, or for a low price to support
low-income families. They doesn't care about making profits, as they want to help the
community, and to teach the children and prepare them for the future when they go to
...........................................................................................................................................
school.
...........................................................................................................................................

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(b) Using Appendix 2 and other information, consider the two options for the first performance at
the theatre. Which is the best option for Zaara to choose? Justify your answer using suitable
calculations.

Less actors needed, therefore less space needed and also less wage costs as 7 x 30 = 210
Option 1: ...........................................................................................................................
Lower costs for scenery, costumers and promotions
=> Low costs means they don't need to have a high start-up capital as it's just their first
...........................................................................................................................................
perfomance
However, revenue is lower.
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

More actors needed, therefore might need to take up a bigger space

Option 2: ...........................................................................................................................
Higher wage costs as 24 x 10 = $240
Higher costs for scenery, promotions and costumers
...........................................................................................................................................
However, higher revenue and also the revenue is higher than costs
=> Not making a loss and has retained profit to prepare for the next performances.
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

Option 2 is the best option for the first performance at the theatre. Even though the
Recommendation: ............................................................................................................
costs are high (24 x 10 + 2000) = $2240, the revenue is even higher ($2500)
therefore the profit is 2500 - 2240 = $260. Even at the start, when they don't have
...........................................................................................................................................
enough capital to pay the costs, they could take out a bank loan to pay for the
costs. Then, they could return with interest as the profit they make is a good
...........................................................................................................................................
amount of profit, and they would still have retained profit to spend for the next
performances.
...........................................................................................................................................

...........................................................................................................................................

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3 (a) Explain four reasons why it is important that Zane prepares a cash-flow forecast before starting
ET.

To take out bank loans. Building a theatre is very costly. If Zane and Zaara startup the
Reason 1: .........................................................................................................................
business as a partnership, they might not have enough capital to build a theatre. Therefore,
they might need to take an external source of finance such as a bank loan. Preparing a
...........................................................................................................................................
cash-flow forecast is necessary to take out a bank loan.
...........................................................................................................................................

...........................................................................................................................................
Clear future plans. With a cashflow forecast, they can predict and be aware of how much
Reason 2: .........................................................................................................................
capital is needed. Therefore, they won't be surprised and will be prepared for all situations,
therefore help them prevent being bankrupted.
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................
To be aware of which costs can be reduced. The cashflow forecast in this situation is
Reason 3: .........................................................................................................................
showing that the costs are quite high. With the cashflow forecast, Zane and Zaara can see
what they can do about it to try and keep costs down.
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................
To see how much profit they make and how to maximize profit. Zane and Zaara are aware
Reason 4: .........................................................................................................................
that if all 100 seats are sold, they'd make an amount of revenue. But if they're not all sold,
they might make a loss. Therefore, they can recalculate to adjust the pricings to ensure
...........................................................................................................................................
that all 100 seats are sold and they make as much profit as possible.

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(b) Consider the following three roles of marketing for ET. Which role will be the most important
for ET to be successful? Justify your answer.

• Identifying customer needs

• Satisfying customer needs
• Maintaining customer loyalty

Carrying out research to understand the trends and what the customers
Identifying customer needs: ..............................................................................................
expect to see from the business, such as price for the seats in the theatre.
They usually do this with a primary/secondary method, such as
...........................................................................................................................................
researching from online sources or newspaper, or they could directly ask
customers. Identifying customer needs is crucial to understand and provide
...........................................................................................................................................
best service and provide the best pricings. ET could also survey the
customers for which performance they'd like to see for the first
performance and act accordingly to the majority of the votes. Identifying
...........................................................................................................................................
customer needs and would provide an advantage against the competitors if
they understand the customer's demands better.
...........................................................................................................................................

...........................................................................................................................................
Satisfying customer needs is acting accordingly to what customers want,
Satisfying customer needs: ..............................................................................................
such as adding services like popcorn, etc. and setting reasonable prices
for the seats and playing the performance that the customers prefers first.
...........................................................................................................................................
Satisfying customer needs is crucial for ET to remain competitive and to
attract more customers, to ensure that they can sell as many seats as
possible to achieve the predicted revenue, to make sure they won't make a
...........................................................................................................................................
loss.
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................
This is very important for ET and could be achieved by providing some
Maintaining customer loyalty: ...........................................................................................
good performances as well as maintaining a good price per seat and
services or promotions such as free popcorn, etc. If there is customer
...........................................................................................................................................
loyalty, ET can keep having a stable revenue. If they can't maintain
customer loyalty, eventually they'll lose all their customers to the other
...........................................................................................................................................
theatres.

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

In my opinion, identifying customer needs is the most important role of marketing for ET.
Conclusion: .......................................................................................................................
Zane and Zaara are considering which show to put on for the first performance. Moreover,
they're considering how to sell all 100 seats to make maximum revenue and to make sure
...........................................................................................................................................
they'll not make a loss on their first performance. To achieve all this, understanding what
customer wants by survey would be the best method. Understanding the customer's
...........................................................................................................................................
needs are crucial to satisfy their needs and to therefore work towards maintaining
customer loyalty. Therefore, identifying customer needs is the most important role of
...........................................................................................................................................
marketing as it is crucial for the other 2 roles to happen.

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4 (a) Explain two leadership styles that Zane and Zaara could use when managing ET’s employees.
Democratic leadership
Leadership style 1: ...........................................................................................................

...........................................................................................................................................

Zane and Zaara are deciding on which performance should be their first. Since they're
Explanation: ......................................................................................................................
working on dramas, the dramas can always be improved. They could ask their
employee's view to see which they think is the more convenient and which they think is
...........................................................................................................................................
better one to attract customers. Moreover, the actors can discuss with Zane and Zaara
on how to make the dramas better and can suggest ideas to improve the script, to
...........................................................................................................................................
provide a performance that is most complete possible.

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

Autocratic leadership
Leadership style 2: ...........................................................................................................

...........................................................................................................................................
ET is only a startup. The employees are also part-time. If ET uses laissez-faire leadership,
Explanation: ......................................................................................................................
there might be miscommunications and the performance might not be high quality as
some scenes might be unreasonable. This might cause the customer loyalty to decrease
...........................................................................................................................................
and make ET make a loss. On the other hand, autocratic leadership states clearly what
the employees need to do and follow, to ensure that everyone is clear of their instructions
...........................................................................................................................................
and there would be no miscommunication, so the play happens in a smooth way.

...........................................................................................................................................

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(b) Consider the following three ethical issues for the theatre. Which ethical issue is likely to have
the biggest effect on ET? Justify your answer.

• Paying fair wages to employees

• Only buying costumes produced in the local community
• Purchasing all refreshments from suppliers that do not pollute the environment

Employees will be motivated to work and will work as hard as

Paying fair wages to employees: ......................................................................................
possible to provide a good play. Therefore, customers will enjoy the
quality and increase customer loyalty. Moreover, this also prevents
...........................................................................................................................................
being fined as in some countries, paying a low wage to employees
is illegal. However, paying fair wages might mean the costs will be
...........................................................................................................................................
increased.

...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................
Supporting the locals and creating jobs and
Only buying costumes produced in the local community: ................................................
allow them to have capital to pay their
day-to-day expenses. The local community
...........................................................................................................................................
would also be fond of ET and might come to
ET's performances to thank them. However,
...........................................................................................................................................
the costumes produced in the local
community might have lower quality than the
...........................................................................................................................................
imported or professionally tailored
costumers, therefore decreasing quality of
the performances and might lose some
...........................................................................................................................................
customers based on that.
...........................................................................................................................................

Purchasing all refreshments from suppliers that do not pollute the environment: ............

Will attract customers who actually care about the environment. Moreover, they are less likely to be
...........................................................................................................................................
fined or supply interrupted by the government as polluting the environment is illegal. However, the
costs might be higher as the suppliers who do not pollute the environment needs to spend some costs
...........................................................................................................................................
on cleaning/using high technology to prevent releasing pollutions into the environment.
...........................................................................................................................................

...........................................................................................................................................

...........................................................................................................................................

In my opinion, purchasing all refreshments from suppliers that do not pollute the
Conclusion: .......................................................................................................................
environment is likely to have the biggest effect on ET. Nowadays, we can see more clearly
the effects of global warming. Consumers therefore will care more about the environment.
...........................................................................................................................................
If ET shows lack of care towards the environment, they might have to pay significant costs
such as consumer boycotts, or even fines from the government. If they don't pay fair
...........................................................................................................................................
wages to employees, they can replace the employees who are unhappy with employees
who are willing to have a lower pay. If they do not buy costumes from the local community,
...........................................................................................................................................
it'd not affect them as supporting the local community is just an extra advantage for the
business, but it's not a must stated in the law.
...........................................................................................................................................

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