Business Studies Q2b – Financial institutions | HSC HSC Practice – StudyPulse
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Business Studies HSC HSC Practice Question 2b – Financial institutions

Q2b Business Studies Financial institutions Module 3 - Outcome 2

EucaPure Ltd is an Australian manufacturer of eucalyptus-based skincare products. It sells to domestic pharmacies and exports 35% of output to Japan. The business plans to build an automated filling and packaging line to improve quality control and reduce unit costs.

Key information:

  • Cost of new line: \$6,200,000
  • Expected life: 10 years
  • Expected annual cost savings (before interest and tax): \$1,050,000
  • Additional working capital required immediately (inventory and receivables): \$900,000
  • Current capital structure (market values): 65% equity, 35% debt
  • Current debt is mostly variable-rate bank debt.

Recent developments:

  • The Reserve Bank of Australia increased the cash rate by 1.00% over the last quarter.
  • The Australian dollar has become more volatile against the Japanese yen.
  • A competitor’s product recall has increased industry scrutiny; EucaPure’s board wants stronger governance and more transparent reporting within 12 months.

Financing approaches under consideration:

  • A major bank has offered a secured 7-year variable-rate loan for up to \$5,000,000 (property and plant as collateral).
  • A finance company has offered a fixed-payment equipment lease for the full \$6,200,000, but requires EucaPure to maintain a minimum current ratio covenant.
  • An investment bank has proposed arranging and underwriting an initial public offer (IPO) on the Australian Securities Exchange (ASX) to raise \$8,000,000, with the excess funds intended to strengthen liquidity and reduce reliance on variable-rate debt.
  • The CFO is also considering whether part of the working capital need could be met by placing surplus cash in a unit trust until required, and whether key-person risk should be managed via a life insurance policy owned by the business.

EucaPure’s board’s stated financial management priorities for the next two years are: maintain liquidity, limit insolvency risk, and fund growth without excessive loss of control by current owners.

Question 2b

8 marks

Analyse how TWO of the recent developments (cash rate increases, AUD/JPY volatility, increased industry scrutiny and governance expectations) would influence EucaPure’s financial management decisions about:

  • the choice between variable-rate bank debt, fixed-payment leasing, and an ASX IPO
  • the timing and size of the funds raised (including the \$900,000 working capital requirement)

Your analysis must explicitly link each development to at least one financial management objective (liquidity, solvency, profitability, efficiency, or growth).

Your Answer

0 words

About This Business Studies Question

This is a free HSC HSC Business Studies practice question worth 8 marks, testing your understanding of Financial institutions. It falls under influences on financial management in Module 3: Finance. Submit your answer above to receive instant AI-powered marking and personalised feedback.

Subject
Business Studies – Higher School Certificate (NSW) HSC
Module 3
Finance
Outcome 2
influences on financial management
Content Point
Financial institutions

Content Point Detail

financial institutions – banks, investment banks, finance companies, superannuation funds, life insurance companies, unit trusts and the Australian Securities Exchange

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