05 Which source of finance do you think ZumGo should use for the new bus? Justify your answer. [6]

[BASEL Moderator]

ZumGo is a business partnership between two brothers Richie and Justin. It provides bus tours for people wanting to go on holiday. After two successful years, Justin wants to expand the business by buying another
bus. This will cost $28 000. When Richie produced the cash flow forecast as part of ZumGo’s business plan
he forgot to include the $6000 for advertising in March. They cannot decide whether to lease the bus or use
all their retained profit to buy one. Leasing would cost $1000 per month for 2 years.

CASH FLOW EXTRACT.JPG (34.15 KiB) Viewed 133 times

05 Which source of finance do you think ZumGo should use for the new bus? Justify your answer. [6]

Possible KN Points:
Profits:
• No need to repay
• No interest OR monthly outgoings from cash flow
• Have sufficient money
• Can keep profit for emergency
• No money left for emergencies

Leasing:
• Not owned
• Can return if necessary
• Able to spread cost
• Negative impact on cash flow
• Cheaper
• Can update to new model