PKN manufactures glass. Contributing to sustainable development is important to the business. PKN has factories in 30 countries. It has 27000 employees. The Managing Director knows PKN has benefited from globalisation. She plans to expand the business using external growth. Retained profit is one source of finance a business could use to fund expansion. Some of PKN's directors are concerned about possible diseconomies of scale as the business grows. （e）Do you think the advantages of using retained profits to fund business expansion are greater than the disadvantages？Justify your answer． .......................................................................................................................................

Answer:

Award up to 2 marks for identification of relevant points.
Award up to 2 marks for relevant development of points.
Award up to 2 marks for a justified decision as to whether the advantages of using retained profits to fund business expansion are greater than the disadvantages.

Points might include:
Advantages:
- No need to repay [k] so does not increase level of debt/liabilities [an]
- No interest to pay [k] so no additional cash outflows/expenses [an]
- Easy/quick to obtain [k]

Disadvantages:
- Takes time to generate sufficient funds \([\mathrm{k}]\) which could delay the expansion [an]
- May not have sufficient/any funds \([\mathrm{k}]\) so must limit the size of expansion [an]
- (Keep more profit in the business) reduces payment/reward to owners [k] which may deter further investment [an]

Other appropriate responses should be credited.

Knowledge points:

Solution: