Question 32

Phoenix Natural Gas has come under fire for increasing its prices for the second time in four months.

The company said its tariff will rise by 17% and blamed the soaring price of wholesale gas for the increase.

It comes on top of a 30% rise announced in September, prompting a call for the gas regulator, Ofreg, to take action.

Ofreg said it was not surprised by the rise but the General Consumer Council said it was "appalling" and a "severe blow" to customers.

The price rise will come into affect on 23 January and apply to more than 90,000 Phoenix Natural Gas customers in Northern Ireland.

Peter Dixon, Chief Executive of Phoenix Natural Gas, said the company was experiencing record high wholesale gas costs.

But he said the company realised it would be unwelcome news for customers.

"Since our last tariff review in October, gas costs have continued to rise significantly. For example, wholesale gas costs in December were more than double those of twelve months earlier," he said.

The second rise means an average annual bill will soar by 52%, or £200, in four months.

Source: BBC News 19^th January 2006 (adapted)

Questions Is demand for Phoenix Gas likely to be inelastic? If prices have risen by 17% and demand is inelastic, what is likely to happen to consumption? How much was the average annual bill last year and now, this year?

Question 31

Comparison website uSwitch.com is considering selling itself privately or floating its shares on the stock exchange as part of a strategic review.

The company is being advised by corporate finance company LongAcre Partners, which steered Friends Reunited towards its £120m sale to ITV.

Privately-owned uSwitch.com is believed to be worth just over £100m.

The website enables consumers to compare the price of energy charges and phone prices with other suppliers.

uSwitch also helps users switch suppliers if they find a better deal. However, none of the companies it represents have a stake in the enterprise.

Source: BBC News 20^th Jan 2006 (adapted)

Questions What are the advantages of ‘floating’ rather than ‘selling privately’? If uSwitch.com is worth £100m and there are 200m shares issued, what is the likely asking price per share? Why do people buy shares?

Question 30

Steadying energy prices helped to improve consumer sentiment in the US during January, according to the University of Michigan's index.

It rose for the third month in a row to 93.4 from December's final reading of 91.5, ahead of analysts' predictions.

Better job conditions and an optimistic outlook for US stocks during 2006 also helped push the index higher.

Consumer spending makes up two-thirds of US economic activity and is a key indicator of the health of the economy.

The dollar rose against the yen and firmed against the euro shortly after the report was issued on Friday.

Retail heating oil prices fell to a five-week low at $2.43 a gallon, down 1.7 cents from a week ago but up 46 cents from a year ago, EIA said.

On Thursday, the number of new jobless workers fell to 271,000 last week, its lowest level since April 2000, the Labor Department said.

Source: BBC News 20^th Jan 2006 (adapted)

Questions What was the percentage increase in the index? as the dollar rose against the yen this would make exports…(cheaper/more expensive) imports from Japan would now be…(cheaper/more expensive) If demand for imports is elastic, will the dollar’s rise be of great help/little help to Japanese exporters? How much was retail heating oil a year ago? How much was retail heating oil a week ago? If demand for retail heating oil has not changed since a week ago, why would the price have fallen? If a year ago demand for oil was 500,000 units and it is now 600,000 does this mean that the relationship between price and demand is direct, not inverse?

Question 29

Bates makes wage demand warning

Leeds chairman Ken Bates believes that players leaving the Premiership need to be realistic in their wage demands.

Fulham captain Lee Clark, 32, had been in line for a move to Elland Road but failed to agree personal terms.

"I know of three players who have been asking for £12,000 a week. The average Championship wage this season is going to be around £3,000 to £4,000."

Leeds encountered major financial problems after their relegation from the top flight and Bates is keen to avoid any such worries in the future.

"We have also had one player, who will not even be fit for the start of the season, asking for £12,000 a week for a two-year deal and his agent wanted another £75,000," he added.

Source: BBC News 14^th June 2005 (adapted)

Questions What is the percentage difference between the £12,000 a week asked for and the average Championship wage? Calculate the difference between the average Championship wage and that of a Head teacher. What is the annual salary of someone on £12,000 a week? Calculate the tax payable on a salary of £12,000 a week. Calculate the hourly wage of someone on £3000 a week assuming a 24-hour day. Research the amount of hours a day a footballer actually ‘works’ and then re-calculate the hourly wage. Compare that to the ‘going rate’ to see privately a Consultant Surgeon at a local hospital.

Question 28

From the moment Southampton's relegation from the Premiership was confirmed at the end of last season, one fixture above all others has been on the lips of Saints fans.

It was a fixture whispered in almost embarrassed hushed tones, as though to speak its name aloud would summon up an evil poltergeist.

The fixture was the visit of Crewe Alexandra, and since that fateful day last May, Saints fans and people at the club have used the very name "Crewe" as the yardstick of how Southampton's fortunes have folded.

Without being unkind to Dario Gradi's team, not even the most ardent Crewe fan would not argue that the Railwaymen have the pulling power of Ivor the Engine, or a Hornby Double-O gauge.

For that reason, Southampton's first League game against Crewe sent a tremor of fear and cold reality that penetrated the heart of a club that has mixed it with the elite for 27 years.

Around 420 Crewe fans rattled around like a pebble in an oil drum in a section normally reserved for 4,000.

Under the circumstances, a crowd of 20,792 was perhaps not as bad as feared.

It was the third-highest of the day in the Championship and bigger than two Premiership gates, but it was the lowest-ever crowd for a league game at St Mary's beating the record set at the previous home Championship match against Norwich.

Saints reckon their income will drop by at least £25m this year, and they have budgeted for that by off-loading some of the top players, and slashing the wages of those left behind by a half. Even chairman Rupert Lowe is not exempt.

Source: BBC News 28^th August 2005 (adapted)

Task Find out the average gate for Southampton’s home games last season and, using the information above, calculate the average seat price. Is it likely that seat prices will have changed? (Explain your answer, using the concept of elasticity)

Question 27

Mahendra is the credit manager in a Romith Ltd, a large company. His monthly report to the general management is divided into three sections

· debtor level

· cash

· overdues.

Question

1. What does each section mean and what information will Mahendra include in each section of his report? How will knowledge of these sections help the firm’s cash management? (30 marks)

Question 26

Given below is the cash forecast for June to August 2000 of Highflyer Ltd, a company which manufactures parachutes.

	June	July	August
	£000	£000	£000
Income
Cash Sales	2,500	3,000	3,300
Sales on credit	10,400	10,000	12,000
	12,900	13,000	15,300
Expenditure
Purchases	6,560	6,300	7,570
Rent	6,000
Expenses	1,800	1,800	1,800
Van		7,700
Drawings	1,200	1,200	1,200
	15,560	17,000	10,570
Bank Balance
Opening balance	700	(1,960)	(5,960)
Add income	12,900	13,000	15,300
Less expenses	(15,560)	(17,000)	(10,570)
Closing balance	(1,960)	(5,960)	(1,230)

Questions

1. Why is efficient management of working capital important to a firm? (6 marks)

2. Explain two ways in which the preparation of a cash budget may be useful to Highflyer Ltd.

(6 marks)

3. What conclusions can you draw from the above cash forecast? (8 marks)

4. What steps can a firm take to solve a cash problem? (10 marks)