Financial Management

Question 1

What is feasibility?

Answer 1

Preliminary investigations done in order to assess the potential benefits of undertaking a project

Question 2

Why do feasibility? (2)

Answer 2

• In order to determine wether or not a business should develop or abandon an activity
• tool to use before any resources are invested

Question 3

How is feasibility done? (2)

Answer 3

• Investigate all factors/resources required to partake in project
• calculate/consider total investment required

Question 4

What to consider during feasibility? (8)

Answer 4

T- technology: wether business has capability of handling software/hardware
E- economic: compare benefits to cost
L- legal: assess wether project complies with the law
O- operational: assess how well project solves problems and opportunities in swot.
M- market: assess location and demographics of target market (scan)
R- resources: amount of resources required, will it interfere with normal.
F: financial- total estimated costs and profitability.

Question 5

What is a budget?

Answer 5

Future-orientated tool that forecasts financial needs of the business

Question 6

Name the different types of budgets (4)

Answer 6

Capital: forecasts asset expenditure
Sales: income received (cash and credit)
Cash: day to day expenditure
Marketing: expenditure of marketing activities

Question 7

What is a break-even point?

Answer 7

Relationship between investment and sales required

Question 8

What is the equation for break even point

Answer 8

BE= fixed costs divided by SP-CP per unit

Question 9

Name the types of costs

Answer 9

Fixed: do not change, regardless of amount produced
Variable: changes as production changes
Operational: day to day costs
Production: incurred during manufacturing

Question 10

What is a pricing policy

Answer 10

A collaboration with the marketing department in order to determine the SP of a product

Question 11

What is the purpose of the pricing policy

Answer 11

• increase profitability
• to set prices in a way that increases sales
• set prices in a way that business can survive
• maintains relevance in market

Question 12

Name techniques of pricing (9)

Answer 12

Bait: illegal pricing that sets prices very low and then are changed on arrival
cost based: CP determines SP
Price discrimination: different prices for different types of consumers
Psychological: use of odd-even numbers to make product appear cheaper
Promotional: sales, prices drop for special events
Competition based: base prices from competitors
Demand based: demand and supply concept
Combination: mixture of techniques
Perceived value: same product charged higher due to environment