Practice IB Business Management Topic 3.2 Sources of Finance with authentic exam-style questions for both SL and HL students. This question bank focuses on the exact syllabus content for 3.2 Sources of Finance and mirrors Paper 1, 2, 3 style where relevant.
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EcoForge Ltd. is a UK-based company that manufactures energy-efficient building materials. To improve competitiveness, EcoForge has adopted a lean production strategy, including just-in-time (JIT) inventory systems and total quality management (TQM) initiatives. As part of its production planning review, the company is investing in new software to better align production schedules with customer orders.
EcoForge Ltd. plans to expand into the European market by opening a new manufacturing plant. The finance team has compiled key efficiency and financial data for 2024 to evaluate whether the company should fund this expansion internally or seek external sources of finance.
Table 1: Selected Financial Data – EcoForge Ltd. (2024)
| Item | Amount (ÂŁ) |
|---|---|
| Revenue | 7,500,000 |
| Cost of sales | 4,400,000 |
| Operating expenses | 2,600,000 |
| Net profit | 500,000 |
| Average stock | 550,000 |
Explain one way total quality management (TQM) can support lean production at EcoForge Ltd.
Calculate the stock turnover ratio for EcoForge Ltd. Show all your working.
Comment on what the stock turnover ratio result suggests about EcoForge Ltd.’s inventory management (stock control) efficiency.
Suggest one internal and one external source of finance EcoForge Ltd. could use to fund the new plant.
Analyse how improved production planning could support EcoForge Ltd.’s financial and strategic goals.
LuminaCare is a Ghana-based, for-profit social enterprise that manufactures solar-powered medical devices for rural clinics and maternal health centers across Sub-Saharan Africa. Its flagship product is a solar fetal heart monitor, which allows midwives to detect complications during pregnancy without relying on grid electricity. The company raised seed capital from impact investors but has now reached an inflection point: demand has grown by 300%, and LuminaCare must decide whether to pursue a $2.5M Series A equity round or take on $1.2M in concessional debt from a development bank.
With reference to Resource 3, describe one HR issue that may be impacting LuminaCare’s ability to scale sustainably.
Explain one financial challenge and one marketing challenge LuminaCare may face if it accepts the concessional loan.
Using the resources and relevant business management tools and theories, recommend a plan of action for LuminaCare over the next five years. Your plan must make a clear recommendation on financing (choose Series A now, choose the concessional loan now, or propose a staged sequence using both at different times) and justify your choice.
TerraVolt Ltd.
TerraVolt Ltd. is a European company specialising in the production of modular battery storage systems for renewable energy projects. After identifying an opportunity to expand into off-grid African markets, TerraVolt invested heavily in a new research and development (R&D) project to develop a lightweight, durable battery model.
However, unexpected production delays caused by supply chain disruptions forced TerraVolt to activate parts of its contingency plan, including outsourcing key components at higher costs. The finance team has prepared the company's final accounts and depreciation schedules to assess the financial impact and to plan for future investment needs.
Table 1: Statement of Profit or Loss for TerraVolt Ltd. for the year ending 31 December 2024 (figures in €000s)
| Item | Amount (€000) |
|---|---|
| Sales revenue | 10,200 |
| Cost of sales | 6,300 |
| Gross profit | 3,900 |
| Operating expenses | 2,400 |
| Depreciation expense | 400 |
| Interest | 150 |
| Profit before tax | — |
| Tax | 150 |
| Profit for the year | — |
Table 2: Statement of Financial Position for TerraVolt Ltd. as at 31 December 2024 (figures in €000s)
| Item | Amount (€000) |
|---|---|
| Non-current assets (at cost) | 2,000 |
| Accumulated depreciation | (800) |
| Current assets | 1,100 |
| Current liabilities | 750 |
| Long-term borrowings | 600 |
| Share capital | 700 |
| Retained earnings | — |
Additional information:
Calculate the profit before tax in 2024 for TerraVolt Ltd. (show your working). Give your final answer in €000s.
Calculate TerraVolt Ltd.’s net book value of non-current assets as at 31 December 2024 (show your working). Give your final answer in €000s.
Using the straight-line depreciation method, calculate TerraVolt Ltd.’s annual depreciation expense based on the machinery investment (show your working). Give your final answer in €000s.
Calculate the current ratio for TerraVolt Ltd. as at 31 December 2024 (show your working).
With reference to Tables 1 and 2 only, state one comment on TerraVolt Ltd.’s profitability and one comment on its liquidity position.
EcoPod Ltd.
EcoPod Ltd. is a private limited company that designs and installs compact eco-friendly garden offices. The company was started by two friends who wanted to promote sustainable working spaces as an alternative to traditional home offices. One of their main business objectives is to expand production while maintaining their commitment to sustainability.
To finance its growth, EcoPod Ltd. reinvested retained profit and also secured a bank loan. However, the company has recently experienced cash flow difficulties due to late payments from customers and rising material costs.
Table 1 shows EcoPod Ltd.'s financial data for the previous month.
Table 1: Financial data for EcoPod Ltd. (Previous month)
| Item | Amount ($) |
|---|---|
| Revenue | 120,000 |
| Cost of sales | 70,000 |
| Operating expenses | 30,000 |
| Cash inflows | 45,000 |
| Cash outflows | 60,000 |
| Opening cash balance | 5,000 |
State two sources of finance used by EcoPod Ltd.
Calculate the net profit for the month. Show all your working.
Calculate the closing cash balance. Show all your working.
Identify one internal stakeholder and explain how they may be affected by EcoPod Ltd.’s cash flow problems.
Outline one advantage of operating as a private limited company.
PureGlow Ltd.
PureGlow Ltd. is a skincare company that sells natural, plant-based beauty products. To support the launch of a new product line, the business used a mix of internal and external sources of finance. It relied on retained profit from previous years and also secured funding from a venture capital firm interested in ethical consumer brands.
The new product range was supported by a marketing plan focused on the premium segment. As part of the plan, PureGlow adjusted elements of its marketing mix, including packaging design and pricing. The company aims to increase market share and improve profit margins in a highly competitive industry.
Table 1 shows selected financial data for the first month after the launch.
Table 1: Financial data for PureGlow Ltd. (Month 1)
| Item | Amount ($) |
|---|---|
| Revenue | 140,000 |
| Cost of sales | 60,000 |
| Expenses | 50,000 |
| Net profit | ? |
State two sources of finance used by PureGlow Ltd.
Calculate the net profit for the month. Show all your working.
Explain one reason why profit is important for a business like PureGlow Ltd.
Identify one element of the marketing mix that was changed and explain its potential impact.
Outline one reason why creating a marketing plan is useful when launching a new product.