Day: July 23, 2020

Lucy was fed up with taking orders from other people at work. She wanted personal satisfaction and financial security so decided to set up as a sole trader selling indoor plants using modern gardening techniques.

After a successful 24 months trading on the internet from home she wanted to expand the business.

Lucy needed to raise £35 000 to buy a nursery and buy gardening equipment.

During Lucy’s second year of trading, bank interest rates increased from 4% to 6%.

Identify ONE possible effect of this change on Lucy’s business.

Select ONE answer:

1. A reduction in fixed costs due to lower repayments on Lucy’s overdraft.
2. A rise in sales due to higher levels of consumer spending.
3. A greater chance of rivals entering the market.
4. A worsening net cash flow position.

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