Business Studies Multiple Choice Question – 8 January 2019

The home of multiple choice questions for all your KS3, KS4 and KS5 Business Studies, Economics and Accounting requirements.

Bob set up Bob’s Musical Fun (BMF). BMF is a high street shop that sells only rare vinyl records. BMF also takes bookings for a number of local bands. The customer asks BMF for a band that plays a particular type of music and BMF finds a band that suits the request. Bob needs a loan to expand his business. As BMF is an established business, the bank agreed to a loan with an interest rate of 6.0%.

The bank has increased the interest rate on BMF’s existing loan from 6.0% to 8%. Identify ONE effect of this change on BMF.

Select ONE answer:

  1. Decreased net cash flow
  2. Increased variable costs
  3. Decreased fixed costs
  4. Increased profit

Show the workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple choice question is suitable for Business Studies KS4 & KS3 classes

The answer is 1:

  1. Decreased net cash flow – is correct because the net cash flow would be affected due to higher cash outflows.
  2. Increased variable costs – is not correct because the interest rate on loans is a fixed cost.
  3. Decreased fixed costs – is not correct because an increase in interest rates will increase fixed costs.
  4. Increased profit – is incorrect because the profit will decrease.

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