Chapter 1: Introduction to business

1 Correct answer(s):
D Option 4
Profit-oriented organisations should aim to maximise shareholder wealth. Non-profit oriented
organisations, such as charities, should aim to provide goods and/or services.

2 Correct answer(s):
A managers seek to make satisfactory profits rather than maximise wealth
Satisficing is when managers are not maximising wealth for owners (which they should in fact be
doing) but are merely making enough profits to keep owners satisfied. Beyond that they simply
choose to pursue their own management objectives. This is the classic agency problem caused by
the separation of ownership and control.

3 Correct answer(s):
C 1 and 3 only
Listed under the broad heading of product development, Joe might choose to: bring in new
products; develop a product range; invest in research and development; provide products of a
certain quality at a certain price level. If he was concentrating on employees and management to
support his primary objective, then he might aim to reduce labour turnover.

4 Correct answer(s):
C To double the share price within the next 10 years
Doubling the share price within the next 10 years is most likely to be the primary business objective.
The other three options would be typical secondary objectives for Avernanche plc in pursuit of the
primary objective.

5 Correct answer(s):
B maximise sales revenue
William Baumol argued that businesses act to maximise sales revenue if managers are rewarded on
the basis of the size of the organisation rather than its profitability or relative performance.

6 Correct answer(s):
A primary objective
Organisations whose primary objective is to make profits for their owners are classified as
businesses.

7 Correct answer(s):
A S
B M
D R
S = specific; M = measurable; A = achievable; R = relevant; T = time-bound
The secondary objective is: specific (market share is a manageable feature of the company);
measurable (20% is a quantifiable yardstick of attainment). All of this is relevant to the business. The
objective is not time-bound because ‘a reasonable time’ does not set a specific time frame. Had it

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 said that the objective should be met within, say, three years then it would have been. There is no
information about whether the secondary objective is achievable.

8 Correct answer(s):
A The business’s market share target for next year
B The business’s productivity improvement target for next year
The mission statement and vision are general expressions of the business’s basic function and
planned future status. Shareholder wealth maximisation would rank as the primary objective of any
organisation classified as a business.

9 Correct answer(s):
B We will encourage diversity in the workplace
C We intend to be the best airline in the world
D We aim to give excellent customer service
A mission statement should answer the following fundamental questions: What is our business? What
is our value to the customer? What do we want our business to become? What should our business
be? A and F are numerical targets and more likely to be secondary objectives; E is a detailed tactic.

10 Correct answer(s):
A Shareholders
C Bankers
The two groups most likely to put the company under pressure to improve its return on investment
are shareholders and bankers. Customers want products of a certain quality at a reasonable price;
suppliers are interested in regular orders in return for reliable delivery and good service; and
employees’ objectives include job security, good conditions of work and job satisfaction.

11 Correct answer(s):
A To provide our shareholders with increased value
The primary business objective of a profit-seeking company is the maximisation of shareholder
wealth (A). The other statements are secondary objectives that will be pursued in support of this
primary objective.

12 Correct answer(s):
B Statement (1) inaccurate; Statement (2) inaccurate
Daycare is clearly a charity, therefore the funding of nursery places is its primary objective. As a non-
profit making organisation it does not seek to maximise profit.

13 Correct answer(s):
A Revenue maximising
Revenue maximisation is where a business acts to maximise revenue (not necessarily profit or wealth)
in order to maintain or increase its market share, ensure survival, and discourage competition. Having
a large increase in revenue but low profit indicates that the business is maximising revenue at the
expense of profit. There is no satisficing because the shareholders are unhappy with the return.

14 Correct answer(s):

106 Business, Technology and Finance ICAEW 2023

 C Even where shareholders are only interested in maximising their wealth, the value of a business
over the longer term is enhanced by good ESG practices
While ESG may involve additional costs to businesses, many investors now avoid businesses with a
poor ESG record. Having a good ESG record therefore may increase the value of a company over the
longer term as it will lead to higher share prices, even though there may be higher costs. Thus even if
shareholders are only interested in maximising their wealth, they adopt good ESG practices. (C) is
therefore correct.

15 Correct answer(s):
B Profits, Planet, People
The triple bottom line was one of the first attempts to develop a reporting framework that focused on
a wider range of issues than simply profit. The three bottom lines are Profits, Planet and People.

16 Correct answer(s):
B Sportylook has a responsibility for the behaviour of its suppliers, and should require suppliers to
comply with its own social standards
Big companies such as Sportylook have considerable influence over their suppliers and should
therefore require its suppliers to behave to the same standards as is considered acceptable by
Sportylook itself. Turning a blind eye to the activities of suppliers would not only be morally
unacceptable, but it would also harm Sportylook’s own reputation.

17 Correct answer(s):
D 1, 2 and 3
All the statements are correct.

18 Correct answer(s):
B Reuse
The bottles are reused.

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