May 2012 Cie a Level Business Studies

Topics: Dividend, Dividend yield, P/E ratio Pages: 8 (1797 words) Published: February 19, 2013
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May/June 2012 3 hours

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Additional Materials:

Answer Booklet/Paper

READ THESE INSTRUCTIONS FIRST If you have been given an Answer Booklet, follow the instructions on the front cover of the Booklet. Write your Centre number, candidate number and name on all the work you hand in. Write in dark blue or black pen. You may use a soft pencil for any diagrams, graph or rough working. Do not use staples, paper clips, highlighters, glue or correction fluid. Section A Answer all questions. Section B Answer one question. The businesses described in this question paper are entirely fictitious. You are advised to spend 40 minutes on Section B. At the end of the examination, fasten all your work securely together. The number of marks is given in brackets [ ] at the end of each question or part question.

This document consists of 6 printed pages and 2 blank pages. DC (RCL (JDA)) 48734/3 © UCLES 2012

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2 Global Conglomerate Company (GCC) Global Conglomerate Company (GCC) is one of Asia’s fastest growing conglomerates. 30 years ago the Hussein brothers started selling used motor cars and they quickly acquired an existing city centre car retailer. This was followed by many other mergers and takeovers. GCC is now a widely diversified conglomerate with subsidiary businesses in the steel, car, transport, publishing, construction, education and food processing industries. GCC is a large public limited company and the Hussein brothers now own less than 50% of the total shares. However, two of the brothers are still on the Board of Directors. Shareholders unhappy with returns Last month’s Annual General Meeting was not an easy one for the directors. The Board’s strategy is ‘investing for long term growth’ to achieve the aim of ‘long term shareholder value’. This was criticised by a large group of shareholders. Two comments from shareholders at the meeting were typical: • ‘Investing for the future by using this year’s profits leaves less capital to pay out in dividends in the short term.’ • ‘With the dividend yield and price earnings ratio falling, why should I keep my shares in GCC?’ Shareholders used an extract from the company accounts to support their views (see Appendix 1). The directors asked for more time for their strategy to achieve results and improve returns to shareholders. The Chairman Leo Hussein said: ‘Profits are unlikely to be higher next year. We did not know that the global economic downturn would occur just as we were starting our ‘investing for long term growth’ strategy. I am sure that in 3 or 4 years’ time the dividend and share price will go up’. After a long debate the directors agreed to look at reducing retained profits to increase dividends in 2013 or selling off a division of the company to raise cash for a ‘special’ dividend payout. Communication issues The global spread of GCC means that it now operates from 63 locations with 162 000 employees. This has led to the use of many different forms of communication. There are barriers to effective communication, such as the use of many languages and differences in attitudes of workers and managers. Meetings of senior managers are difficult to arrange due to distances between business subsidiaries. Important communications from business subsidiaries are often not received quickly enough by directors at Head Office. The removal of one layer of management in the motor car division did improve communication, but other divisions have not delayered their organisational structure. The Human Resources Director believes that information and communication technology is the answer to these problems. He wants all workers and managers to be issued with portable, Internet-linked computers. These would allow receipt of messages and sending of quick replies....
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