Practice IB Business Management Topic 3.7 Cash Flow with authentic exam-style questions for both SL and HL students. This question bank focuses on the exact syllabus content for 3.7 Cash Flow and mirrors Paper 1, 2, 3 style where relevant.
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LuminaCare
(a) With reference to Resource 3, one HR issue that may be impacting LuminaCare’s ability to scale sustainably.
(b) one financial challenge and one marketing challenge LuminaCare may face if it accepts the concessional loan.
(e) one financial challenge that FreshSteps Foundation may face by relying on project-based cash inflows.
(e) one advantage of operating as a private limited company.
(e) how PulseFuel Ltd.’s USP could help support a move toward premium or contribution-based pricing in future.
(e) one element of the marketing plan mentioned in the case and its purpose.
FreshSteps Foundation
FreshSteps Foundation is a non-profit social enterprise based in Kenya that installs small-scale water filtration systems in rural communities. It operates as a private limited company (Ltd) but reinvests all surplus profits to expand its social impact rather than paying dividends.
Its business objectives include achieving financial sustainability and maintaining a minimum return on capital employed (ROCE) of 5% to fund future installations without relying heavily on grants.
Table 1: Statement of Profit or Loss for FreshSteps Foundation for the year ending 31 December 2024 (figures in $000)
| Item | Amount ($000) |
|---|---|
| Sales revenue | 2,600 |
| Cost of sales | 1,300 |
| Operating expenses | 1,050 |
| Depreciation expense | 100 |
| Interest expense | 40 |
| Tax | — (tax-exempt) |
Table 2: Additional Financial Information
| Item | Amount ($000) |
|---|---|
| Capital employed | 3,500 |
(a) the gross profit for FreshSteps Foundation. Show all your working.
(b) why FreshSteps Foundation is tax exempt.
(c) the current ratio for FreshSteps Foundation. Show all your working.
(d) the payback period for the new project. Show all your working.
EcoPod Ltd.
EcoPod Ltd. is a private limited company that designs and installs compact eco-friendly garden offices. The company was started by two friends who wanted to promote sustainable working spaces as an alternative to traditional home offices. One of their main business objectives is to expand production while maintaining their commitment to sustainability.
To finance its growth, EcoPod Ltd. reinvested retained profit and also secured a bank loan. However, the company has recently experienced cash flow difficulties due to late payments from customers and rising material costs.
Table 1 shows EcoPod Ltd.'s financial data for the previous month.
Table 1: Financial data for EcoPod Ltd. (Previous month)
| Item | Amount ($) |
|---|---|
| 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 |
(a) two sources of finance used by EcoPod Ltd.
(b) the net profit for the month. Show all your working.
(c) the closing cash balance. Show all your working.
PulseFuel Ltd.
PulseFuel Ltd. is a startup producing high-performance energy drinks aimed at endurance athletes. The company prides itself on its proprietary electrolyte formula, which forms the basis of its USP. Although sales have grown rapidly, production costs remain high and most sales are made on credit. PulseFuel Ltd. is considering adjusting its pricing strategy to gain market share in the short term.
Table 1: Cash flow forecast for PulseFuel Ltd. for the first three months of 2025
(All figures in $000)
| January | February | March | |
|---|---|---|---|
| Opening balance | 3 | 1 | (2) |
| Cash inflows | |||
| Credit sales collected | 150 | 200 | 250 |
| Crowdfunding contributions | 25 | – | – |
| Investor seed funding | – | – | 100 |
| Total cash inflows | 175 | 200 | 350 |
| Cash outflows | |||
| Packaging and ingredients | 120 | 120 | 130 |
| Wages | 30 | 30 | 30 |
| Equipment leasing | 10 | 10 | 10 |
| Distribution and marketing | 17 | 43 | 50 |
(a) Using Table 1, the total net cash flow for the quarter (January–March 2025). Give your answer in $000.
(b) one reason why PulseFuel Ltd. might be profitable but still experience negative cash flow in its first two months.
(c) one external source of short-term finance, other than crowdfunding or seed investment, that would help PulseFuel Ltd. smooth early cash flow problems.
(d) the pricing strategy PulseFuel Ltd. may be considering and how this could affect its short-term and long-term positioning.
CycleSpark Ltd.
CycleSpark Ltd. is a company that designs and sells electric bicycles. The business recently launched a new model and created a marketing plan focused on urban commuters. The plan includes promotional discounts, partnerships with eco-friendly organisations, and a pricing strategy to remain competitive.
To support the launch, CycleSpark obtained a medium-term loan and used retained profit from the previous year. Although sales increased, the company experienced cash flow difficulties due to a delay in customer payments.
Table 1 shows selected financial data from the month following the product launch.
Table 1: Financial data for CycleSpark Ltd. (Month 1)
| Item | Amount ($) |
|---|---|
| Revenue | 180,000 |
| Cost of sales | 110,000 |
| Expenses | 50,000 |
| Opening balance | 8,000 |
| Cash inflows | 70,000 |
| Cash outflows | 95,000 |
(a) two sources of finance used by CycleSpark Ltd.
(b) the net profit for the month. Show all your working.
(c) the closing cash balance for the month. Show all your working.
(d) one reason why a business with strong sales might still face cash flow problems.
(c) 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 your choice.
(d) one internal stakeholder and how they may be affected by EcoPod Ltd.’s cash flow problems.
| Current assets | 480 |
| Current liabilities | 400 |
| Initial investment for new project | 800 |
| Net annual cash inflow from project | 220 |
| Total cash outflows | 177 | 203 | 220 |
| Net cash flow | (2) | (3) | 130 |
| Closing balance | 1 | (2) | 128 |
