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%.
Which one of the following would be a benefit for BMF if it delayed paying its suppliers?
Select ONE answer:
- Increased profit
- Improved cash flow
- Reduced interest payments
- Improved relationship with suppliers
Show the workings to arrive at your answer, and explain and justify your reasons:
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This multiple choice question is suitable for Business Studies KS4 & KS3 classes
The answer is 2:
- Increased profit – is not correct because profit would not be greater if you delayed paying suppliers.
- Improved cash flow – is correct because cash outflows are decreased.
- Reduced interest payments – is not correct because interest rates do not affect delayed paying to suppliers.
- Improved relationship with suppliers – is not correct because delaying payment would have the opposite effect on suppliers.
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