Practice 3.8 Investment appraisal with authentic IB Business Management exam questions for both SL and HL students. This question bank mirrors Paper 1, 2, 3 structure, covering key topics like systems and structures, human behavior and interaction, and sustainability and ethics. Get instant solutions, detailed explanations, and build exam confidence with questions in the style of IB examiners.
Paper
Level
Question 1
HLPaper 3
LuminaCare
Resource 1 – Company profile and financial context
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.
Resource 2 – CFO’s internal memo (Finance)
“Our burn rate is steady, but we’ve reached our credit limit with suppliers. We operate on 90-day payment terms with clinics, so cash flow is always tight. Series A equity gives us the scale to meet demand and build a second facility—but would dilute founder control and introduce board-level oversight. The concessional loan is low-interest and non-dilutive but comes with covenants: quarterly EBITDA targets, strict capex limits, and donor-style reporting. Any miss could trigger loan restructuring or early repayment.”
Resource 3 – HR performance dashboard (Q1–Q2 2025)
| Metric | Value |
|---|---|
| Staff turnover (last 6 months) | 22% |
| Time to fill technical roles | 49 days (↑ 24%) |
| % of roles with formal job descriptions | 58% |
| Managerial span of control | Avg. 12 direct reports |
| Avg. team engagement score | 67/100 (↓ from 78) |
| The head of HR notes that burnout and unclear career paths are leading to attrition, especially among product engineers and field deployment staff. |
Resource 4 – Marketing team proposal
“Clinics love our mission—but most have no idea who we are until we show up at trade shows. We need to invest in inbound marketing, including a multilingual website, CRM tools, and a referral rewards program for midwives. More crucially, we’re perceived as a donor-funded nonprofit, not a serious tech company. To attract hospital procurement officers and larger buyers, we must reposition the brand to emphasize product quality, not just affordability and ethics.”
Resource 5 – Email thread: CEO to CFO and Marketing Lead
Resource 6 – Feedback from key field partners
“We rely on LuminaCare’s devices, but their response time for repairs has worsened.” “Sometimes we get different pricing from different reps. There’s no standard process.” “I love the mission—but our procurement officer wants a brand that feels serious. A logo change isn’t enough.”
1.[2]
With reference to Resource 3, describe one HR issue that may be impacting LuminaCare’s ability to scale sustainably.
2.[6]
Explain one financial challenge and one marketing challenge LuminaCare may face if it accepts the concessional loan.
3.[17]
Using all the resources provided and your knowledge of business management tools and theories, recommend a possible plan of action for LuminaCare over the next five years.
Question 2
HLPaper 2
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 |
| Current assets | 480 |
| Current liabilities | 400 |
| Initial investment for new project | 800 |
| Net annual cash inflow from project | 220 |
1.[2]
Calculate the gross profit for FreshSteps Foundation. Show all your working.
2.[2]
State why FreshSteps Foundation is tax exempt.
3.[2]
Calculate the current ratio for FreshSteps Foundation. Show all your working.
4.[2]
Calculate the payback period for the new project. Show all your working.
5.[2]
Explain one financial challenge that FreshSteps Foundation may face by relying on project-based cash inflows.
Question 3
HLPaper 2
VisionWare Ltd.
VisionWare Ltd. specializes in AI-powered smart home devices. The company is planning to launch a new product and must choose between two investment projects: Project Alpha and Project Beta.
| Investment Data for VisionWare Ltd. |
|---|
| Initial investment (both projects) |
| Project Alpha: total net cash inflows (4 years) |
| Project Beta: total net cash inflows (3 years) |
| Project Alpha: Yearly inflows: Y1 180,000, Y3 180,000 |
| Project Beta: Yearly inflows: Y1 200,000, Y3 $100,000 |
| Discount rate for NPV |
VisionWare Ltd. is also reorganizing internal reporting, assigning responsibility for controlling spending in different departments.
In addition, management is focused on protecting their proprietary AI algorithms from competitors and using customer data to identify emerging needs before competitors do.
1.[2]
Calculate the payback period for Project Beta.
2.[2]
Calculate the average rate of return (ARR) for Project Alpha.
3.[2]
Calculate the Net Present Value (NPV) for Project Beta, assuming a 10% discount rate and using approximate NPV factors:
- Year 1: 0.91
- Year 2: 0.83
- Year 3: 0.75
4.[2]
Identify the difference between cost centres and profit centres within an organization like VisionWare Ltd.
5.[2]
Suggest one reason why protecting intellectual property is important for VisionWare Ltd.
Question 4
SLPaper 2
VibeAudio Ltd.
VibeAudio Ltd. is a company that designs and sells high-end wireless speakers targeted at design-conscious music enthusiasts. The business recently underwent a brand refresh and developed a new marketing plan targeting younger consumers. Based on insights from focus groups and competitor analysis, the company adjusted several elements of its marketing mix, including the product design, pricing strategy, and promotional platforms.
To support the launch of a new speaker model, the business secured a medium-term bank loan and allocated funds from retained profit to cover upfront development costs. The finance team is preparing a statement of profit or loss to evaluate the performance of the new speaker and is also assessing the viability of investing in a new flagship showroom.
Table 1: Financial data for VibeAudio Ltd. – New Speaker Product (Q1 2024)
| Item | Amount ($) |
|---|---|
| Units sold | 1,200 |
| Selling price per unit | 180.00 |
| Variable cost per unit | 75.00 |
| Advertising and promotion | 25,000 |
| Salaries (marketing/admin) | 40,000 |
| Loan interest | 3,500 |
| Office rent and utilities | 12,000 |
| Tax rate | 25% |
| Dividends paid | 5,000 |
1.[2]
Explain how the insights from VibeAudio Ltd.’s market research could shape its marketing planning.
2.[2]
Suggest one element of the marketing mix that appears to have been prioritised in the launch
3.[2]
Using the data in table 1, construct a statement of profit or loss for the new speaker product
4.[2]
Based on your statement, explain whether the new speaker model appears to be financially sustainable.
5.[2]
The company is considering investing $90,000 in a flagship showroom. The showroom is expected to generate annual net cash inflows of $35,000 for three years.
Calculate the payback period for this investment. Show all your working.
Question 5
HLPaper 3
Elevate Health Tech (EHT)
Resource 1 – Background of the organization
Elevate Health Tech (EHT) is a social enterprise based in Peru. Founded in 2021 by two biomedical engineers, it develops low-cost, portable diagnostic devices (such as digital stethoscopes and glucose meters) for use in rural and underserved communities across Latin America. EHT reinvests all profits into R&D and local employment programs.
EHT has grown quickly, scaling from 5 to 38 employees in two years. It operates as a private limited company, with both founders holding equal ownership and decision-making authority.
Resource 2 – Statement from the HR Director
"Our team is motivated by our mission, but we’re facing growing pains. We’ve recently hired 12 new staff, many with limited technical background. We have no formal training programme or organizational structure. Employees report confusion about job roles, and productivity varies significantly across teams. The co-founders are very hands-on, but this is becoming unsustainable."
Resource 3 – Loan proposal from the Development Impact Bank (DIB)
DIB is prepared to offer EHT a $750,000 low-interest loan to expand production and distribution across four Andean countries. The loan would cover machinery upgrades and recruitment but requires EHT to submit quarterly financial statements and maintain a current ratio of at least 1.5 throughout the term.
A grace period of 18 months will apply before repayments begin.
Resource 4 – Excerpt from EHT’s financial summary (unaudited, 2024)
Note: Fixed assets are fully depreciated and no longer productive.
| Item | Amount (USD) |
|---|---|
| Current assets | $230,000 |
| Current liabilities | $180,000 |
| Non-current liabilities | $50,000 |
| Retained profit | $40,000 |
| Total equity | $100,000 |
Resource 5 – Email from the Head of R&D
"To remain competitive, we need to launch two new diagnostic products within the next 18 months. The current design lab is at capacity. We either need to lease a second lab or invest in automation. The team is overworked and we’ve lost two engineers to burnout. I’m also concerned about our lack of appraisal or performance review systems."
Resource 6 – Mission statement (from company website)
We believe affordable diagnostics are a human right. We exist to empower healthcare workers and communities with reliable tools, local jobs, and dignity-driven innovation.
1.[2]
With reference to the stimulus, describe one internal issue that might arise from EHT’s current ownership structure.
2.[6]
Explain one human resource challenge and one financial challenge that EHT may face if it accepts the DIB loan and scales up
3.[17]
Using all the resources provided and your knowledge of business management tools and theories, recommend a possible plan of action for EHT over the next five years.
Question 6
SLPaper 2
FlexiFit Ltd.
FlexiFit Ltd. is a company that designs and sells adjustable home fitness equipment. The operations manager follows a democratic leadership style, encouraging employees to contribute ideas and participate in problem-solving discussions. Recently, the company introduced a non-financial motivation scheme, offering flexible work hours and job rotation to increase employee engagement.
FlexiFit is evaluating whether to invest in a new production machine that will increase output. The machine costs $30,000 and is expected to generate the following cash inflows over the next three years:
Table 1: Estimated cash inflows from new machine
| Year | Cash inflow ($) |
|---|---|
| 1 | 10,000 |
| 2 | 12,000 |
| 3 | 15,000 |
The finance team has also reviewed recent financial performance, as shown in Table 2.
Table 2: Financial data for FlexiFit Ltd.
| Item | Amount ($) |
|---|---|
| Net profit | 45,000 |
| Revenue | 300,000 |
| Current assets | 90,000 |
| Current liabilities | 60,000 |
| Selling price per unit | 100 |
| Variable cost per unit | 40 |
| Fixed costs per month | 9,000 |
1.[2]
Calculate the net profit margin for FlexiFit Ltd. Show all your working.
2.[2]
Calculate the current ratio. Show all your working.
3.[2]
Calculate the break-even output per month. Show all your working.
4.[2]
State the payback period for the new machine. Show all your working.
5.[2]
Explain one non-financial method of motivation used by FlexiFit Ltd. and how it could benefit the business.
Question 7
SLPaper 2
HydroGlow Ltd.
HydroGlow Ltd. is a fast-growing manufacturer of smart hydration devices. Founded by two engineers, it recently expanded into Southeast Asia and North America, marking its transition into a multinational company (MNC). Its business objective is to grow sustainably while maintaining high product innovation and employee well-being.
Due to expansion, the company adopted a divisional organisational structure, with separate regional heads managing operations. However, concerns have emerged about inconsistent leadership styles and uneven motivation levels across regional teams. Some managers use autocratic approaches to meet targets, while others encourage more inclusive practices.
HydroGlow Ltd. secured venture capital and a long-term loan to finance its growth, but now faces rising fixed costs and pressure to deliver strong returns. The finance team has compiled the following performance data from one of its new regional divisions.
Table 1: Financial data for HydroGlow Ltd. – Q1 2024 (North American Division)
| Item | Amount ($) |
|---|---|
| Units sold | 2,500 |
| Selling price per unit | 110.00 |
| Variable cost per unit | 45.00 |
| Salaries (admin, regional management) | 60,000 |
| Marketing and advertising | 35,000 |
| Logistics and warehousing | 20,000 |
| Office rent and utilities | 25,000 |
| Loan interest | 6,500 |
| Tax rate | 20% |
| Dividends paid | 15,000 |
1.[2]
Suggest one stakeholder group that may be most concerned about inconsistent leadership styles across HydroGlow’s divisions
2.[2]
Explain one way HydroGlow’s current organisational structure may help or hinder motivation across its international teams.
3.[2]
Construct a statement of profit or loss for HydroGlow Ltd.’s North American Division for Q1 2024 using the data in Table 1.
4.[2]
Suggest, using your profit and loss account, whether this regional division appears financially strong enough to support further growth.
5.[2]
HydroGlow is considering investing $120,000 in automated production to reduce labour costs. The project is expected to generate net cash inflows of $40,000 per year for four years.
Calculate the payback period for this investment. Show all your working.
Question 8
HLPaper 2
EcoBlade Ltd.
EcoBlade Ltd. produces biodegradable razors aimed at environmentally conscious consumers. The company is deciding whether to invest in a second production site closer to its largest market.
Management is considering two investment projects and recently reviewed its operational performance.
Table 1: Income and Expenses for EcoBlade Ltd. – Year Ended 2024
(All figures in $m)
| Statement of Profit and Loss (excerpt) | |
|---|---|
| Revenue | 14.0 |
| Cost of goods sold | (9.0) |
| Gross profit | 5.0 |
| Operating expenses | (3.0) |
| Net profit before tax | 2.0 |
| Statement of Financial Position (excerpt) | |
|---|---|
| Current assets | 4.0 |
| Current liabilities | 2.0 |
| Current ratio | 2:1 |
Table 2: Investment Appraisal Data – Project A and Project B
(All figures in $m)
| Project | A | B |
|---|---|---|
| Initial investment | 5.0 | 5.0 |
| Net cash inflows: Y1 | 2.0 | 1.0 |
| Net cash inflows: Y2 | 2.0 | 2.0 |
| Net cash inflows: Y3 | 1.5 | 2.5 |
| ARR (over 3 years) | ___ | ___ |
| NPV (@10% discount) | $0.7 | $0.5 |
Additional context:
- EcoBlade currently uses quality control to catch faulty razors at the packaging stage, but rejects remain high.
- The proposed new site would reduce delivery times by 50% and is near suppliers of plant-based plastic.
1.[2]
Calculate EcoBlade Ltd.'s net profit before tax
2.[2]
Calculate the ARR for both Project A and Project B.
3.[2]
Explain one advantage of using NPV instead of payback period alone for investment decision-making.
4.[2]
Distinguish between quality control and quality assurance using EcoBlade Ltd. as an example.
5.[2]
Outline one operational reason why EcoBlade Ltd. is considering locating its second factory near suppliers.
Question 9
HLPaper 3
CultureBean
Resource 1 – Background of the business
CultureBean is a for-profit social enterprise based in Singapore that sources specialty coffee beans from minority-owned micro-farms across Southeast Asia. It operates a hybrid model: a retail café, an e-commerce subscription service, and B2B partnerships with ethical grocers.
CultureBean reinvests 60% of profits into farmer development programs, while retaining 40% for growth. The company’s marketing emphasizes transparency, social impact, and traceability. Its founders are considering a regional expansion.
Resource 2 – Summarized excerpts of CultureBean’s Statement of Profit and Loss and Statement of Financial Position (FY2024)
CultureBean’s web platform needs investment, and its founders are exploring options for financing a $250,000 digital marketing and rebranding campaign.
| Item | Value (SGD) |
|---|---|
| Sales revenue | $1,100,000 |
| Gross profit | $440,000 |
| Net profit before tax | $85,000 |
| Current assets | $210,000 |
| Current liabilities | $105,000 |
| Equity | $300,000 |
| Non-current liabilities | $100,000 |
Resource 3 – Internal marketing audit summary
85% of traffic comes from referral or word-of-mouth.
Website conversion rate is low (1.2%), especially on mobile.
No influencer partnerships or paid ads are in place.
Brand surveys show strong customer trust and authenticity, but low awareness beyond Singapore.
Resource 4 – Excerpt from customer interviews
“I love the mission, but I only heard about CultureBean through a friend. I wish they’d post more on Instagram.”
“Their site feels outdated. On mobile, I couldn’t finish subscribing to the beans.”
“It feels very ethical and personal. But I don’t know if they’re exporting to other countries yet.”
Resource 5 – Offer from an impact investor
Ethos Capital, a regional impact investor, has offered $300,000 in equity financing for a 15% stake. They require:
Quarterly reporting on marketing ROI and brand KPIs
Use of funds strictly for growth-related expenses
CultureBean to expand into two new Asian markets within 24 months
Resource 6 – Marketing team memo
“We believe we can grow significantly with the right storytelling and digital tools. But we currently lack SEO expertise, localized landing pages, or any paid ad funnel. Without funding, we can’t execute. We’d also like to pilot a ‘Farmer Stories’ video series to deepen engagement.”
1.[2]
With reference to the data provided, describe one financial strength of CultureBean that may support expansion.
2.[6]
Explain one marketing challenge and one financial challenge CultureBean may face if it accepts the offer from Ethos Capital.
3.[17]
Using all the resources provided and your knowledge of business management tools and theories, recommend a possible plan of action for CultureBean over the next five years.
Question 10
HLPaper 2
GreenGadget Innovations
GreenGadget Innovations is a technology company that produces environmentally friendly electronic devices. The company has grown steadily over the past three years and is now planning a major investment to enhance its market share. Management is evaluating two projects: (1) launching a new product line of solar-powered smartwatches or (2) upgrading its manufacturing facilities to improve efficiency and reduce costs.
Both options require significant financial investment. To ensure the company manages its resources effectively, GreenGadget also plans to implement a more detailed budgeting system to control expenses and forecast revenues accurately.
The following financial data is provided:
1.[6]
Calculate the payback period and net present value (NPV) for both investment options (Solar Smartwatch and Facility Upgrade). Recommend which project GreenGadget should pursue based on your calculations.
2.[4]
Discuss the importance of budgeting for GreenGadget Innovations in managing its financial resources, especially when implementing a significant investment.
3.[4]
Analyze how GreenGadget can use capital budgeting techniques to prioritize between these two investment projects.
4.[10]
Evaluate the potential risks and rewards of launching the solar smartwatch compared to upgrading the manufacturing facilities.