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
EcoFreight Solutions is a private limited company (Ltd) specializing in zero-emission urban logistics and electric vehicle (EV) fleet management. The firm prioritizes environmental sustainability while aiming for a target return on capital employed (ROCE) of 8% to reinvest in next-generation battery technology.
Table 1: Statement of Profit or Loss for EcoFreight Solutions for the year ending 31 December 2024 (figures in $000)
| Item | Amount ($000) |
|---|---|
| Sales revenue | 4,200 |
| Cost of sales | 2,400 |
| Operating expenses | 1,100 |
| Depreciation expense | 150 |
| Interest expense | 60 |
| Tax | 80 |
Table 2: Additional Financial Information
| Item | Amount ($000) |
|---|---|
| Capital employed | 5,500 |
| Current assets | 920 |
| Current liabilities | 800 |
| Initial investment for new project | 1,200 |
| Net annual cash inflow from project | 300 |
1.[2]
Calculate the gross profit for EcoFreight Solutions. Show all your working.
2.[2]
State one reason why EcoFreight Solutions, as a specialized EV logistics firm, might be eligible for government R&D tax credits.
3.[2]
Calculate the current ratio for EcoFreight Solutions based on the financial data provided. Show all your working.
4.[2]
Calculate the payback period for the new automated sorting hub project. Show all your working.
5.[2]
Explain one financial challenge that EcoFreight Solutions may face as a result of relying on long-term corporate contracts with 90-day payment terms.
Question 4
HLPaper 2
RapidFit Gym
RapidFit Gym is a small chain of fitness centers offering affordable memberships and group classes. The company has seen consistent growth over the past five years but is now facing increased competition from boutique fitness studios and online fitness platforms.
RapidFit is considering investing in a new gym location or upgrading its existing facilities to attract more members. The management is also concerned about operational inefficiencies, particularly with inventory management for gym equipment and receivables from corporate clients who pay for bulk memberships.
The following financial data is provided for the year ending December 31, 2023:
| Financial Metric | Value (USD) |
|---|---|
| Revenue | 2,000,000 |
| Cost of Goods Sold (COGS) | 1,200,000 |
| Operating Expenses | 600,000 |
| Net Profit | 200,000 |
| Average Inventory | 100,000 |
| Average Accounts Receivable | 120,000 |
| Initial Investment for New Gym | 1,000,000 |
| Initial Investment for Upgrade | 500,000 |
| Projected Annual Cash Flow (Gym) | 200,000 |
| Projected Annual Cash Flow (Upgrade) | 120,000 |
| Discount Rate | 10% |
| Useful Life (years) | 5 |
1.[4]
Calculate the payback period and net present value (NPV) for both investment options (new gym location and upgrade).
2.[4]
Using the provided data, analyze RapidFit’s inventory turnover ratio and evaluate its operational efficiency.
3.[4]
Explain the impact of inefficiencies in receivables management on RapidFit’s liquidity and suggest strategies to address this issue.
Question 5
HLPaper 2
EcoFreight Solutions
EcoFreight Solutions is a private limited company (Ltd) specializing in zero-emission urban logistics and electric vehicle (EV) fleet management. The firm prioritizes environmental sustainability while aiming for a target return on capital employed (ROCE) of 8% to reinvest in next-generation battery technology.
Table 1: Statement of Profit or Loss for EcoFreight Solutions for the year ending 31 December 2024 (figures in $000)
| Item | Amount ($000) |
|---|---|
| Sales revenue | 4,200 |
| Cost of sales | 2,400 |
| Operating expenses | 1,100 |
| Depreciation expense | 150 |
| Interest expense | 60 |
| Tax | 80 |
Table 2: Additional Financial Information
| Item | Amount ($000) |
|---|---|
| Capital employed | 5,500 |
| Current assets | 920 |
| Current liabilities | 800 |
| Initial investment for new project | 1,200 |
| Net annual cash inflow from project | 300 |
1.[2]
Calculate the gross profit for EcoFreight Solutions. Show all your working.
2.[2]
State one reason why EcoFreight Solutions, as a specialized EV logistics firm, might be eligible for government R&D tax credits.
3.[2]
Calculate the current ratio for EcoFreight Solutions based on the financial data provided. Show all your working.
4.[2]
Calculate the payback period for the new automated sorting hub project. Show all your working.
5.[2]
Explain one financial challenge that EcoFreight Solutions may face as a result of relying on long-term corporate contracts with 90-day payment terms.
Question 6
SLPaper 2
3.4 Final accounts
3.5 Profitability and liquidity ratio analysis
3.8 Investment appraisal
5.3 Lean production and quality management (HL only)
5.4 Location
Question 54 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 shows income and expenses for the year ended 20XX. Table 2 presents data for two expansion projects under consideration.
Table 1: Income and Expenses for EcoBlade Ltd. – Year Ended 20XX (All figures in $m)
| Revenue | 14.0 |
|---|---|
| Cost of goods sold | 9.0 |
| Operating expenses | 3.0 |
| Net profit before tax | ______ |
| Current assets | 4.0 | | Current liabilities | 2.0 |
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.
(a) Calculate:
(i) Net profit before tax
(ii) Current ratio
[2]
(b) Calculate the ARR for both Project A and Project B.
[2]
(c) Explain one advantage of using NPV instead of payback period alone for investment decision-making.
[2]
(d) Distinguish between quality control and quality assurance using EcoBlade Ltd. as an example.
[2]
(e) Outline one operational reason why EcoBlade Ltd. is considering its second factory near suppliers.
[2]
Total marks: [10]
1.[2]
Calculate:
(i) Net profit before tax
(ii) Current ratio
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 its second factory near suppliers.
Question 7
HLPaper 2
EcoFreight Solutions is a private limited company (Ltd) specializing in zero-emission urban logistics and electric vehicle (EV) fleet management. The firm prioritizes environmental sustainability while aiming for a target return on capital employed (ROCE) of 8% to reinvest in next-generation battery technology.
Table 1: Statement of Profit or Loss for EcoFreight Solutions for the year ending 31 December 2024 (figures in $000)
| Item | Amount ($000) |
|---|---|
| Sales revenue | 4,200 |
| Cost of sales | 2,400 |
| Operating expenses | 1,100 |
| Depreciation expense | 150 |
| Interest expense | 60 |
| Tax | 80 |
Table 2: Additional Financial Information
| Item | Amount ($000) |
|---|---|
| Capital employed | 5,500 |
| Current assets | 920 |
| Current liabilities | 800 |
| Initial investment for new project | 1,200 |
| Net annual cash inflow from project | 300 |
1.[2]
Explain one financial challenge that EcoFreight Solutions may face as a result of relying on long-term corporate contracts with 90-day payment terms.
Question 8
HLPaper 2
TerraCraft Ltd (TC)
TerraCraft Ltd (TC) manufactures sustainable furniture products in Sweden. Due to increasing demand, TC is considering investing in a new production facility. To determine the viability of this investment, TC’s finance team has performed an investment appraisal, calculating payback periods and net present value (NPV).
To enhance efficiency and productivity, TC is also evaluating its current operations methods, debating a shift from job production to batch or flow production. The company recently analyzed its operational performance using efficiency ratio analysis, revealing lower-than-expected inventory turnover and declining productivity ratios.
TC has a strong, environmentally-driven organizational culture valued by its stakeholders. However, stakeholders, including employees and environmental activists, are concerned that rapid operational expansion and changes in production methods could negatively affect this culture and TC’s sustainability commitments.
1.[2]
Define the term ‘investment appraisal’.
2.[4]
Explain two potential stakeholder conflicts that might result from TC changing its operations methods.
3.[4]
Explain two benefits for TC of using efficiency ratio analysis.
4.[4]
Outline two ways TC’s strong organizational culture contributes to its business success.
5.[10]
Examine whether TC should switch from job production to flow production to improve efficiency, considering stakeholder concerns, organizational culture, and investment appraisal results.
Question 9
SLPaper 2
3.4 Final accounts
3.5 Profitability and liquidity ratio analysis
3.8 Investment appraisal
5.3 Lean production and quality management (HL only)
5.4 Location
Question 54 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 shows income and expenses for the year ended 20XX. Table 2 presents data for two expansion projects under consideration.
Table 1: Income and Expenses for EcoBlade Ltd. – Year Ended 20XX (All figures in $m)
| Revenue | 14.0 |
|---|---|
| Cost of goods sold | 9.0 |
| Operating expenses | 3.0 |
| Net profit before tax | ______ |
| Current assets | 4.0 | | Current liabilities | 2.0 |
Table 2: Investment Appraisal Data - Project A and Project B (All figures in $m)
| Project | A | B | ||
|---|---|---|---|---|
| Initial investment | ||||
| Net cash inflows: Y1 2.0 | 1.0 | |||
| Net cash inflows: Y2 2.0 2.0 2.0 | ||||
| Net cash inflows: Y3 1.5 2.5 | ||||
| ARR (over 3 years) | ||||
| NPV (@10% discount) 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.
(a) Calculate: (i) Net profit before tax (ii) Current ratio
(b) Calculate the ARR for both Project A and Project B.
(c) Explain one advantage of using NPV instead of payback period alone for investment decision-making.
(d) Distinguish between quality control and quality assurance using EcoBlade Ltd. as an example.
(e) Outline one operational reason why EcoBlade Ltd. is considering its second factory near suppliers.
Total marks: [10]
1.[2]
Calculate:
(i) Net profit before tax
(ii) Current ratio
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 its second factory near suppliers.
Question 10
HLPaper 2
EcoFreight Solutions is a private limited company (Ltd) specializing in zero-emission urban logistics and electric vehicle (EV) fleet management. The firm prioritizes environmental sustainability while aiming for a target return on capital employed (ROCE) of 8% to reinvest in next-generation battery technology.
Table 1: Statement of Profit or Loss for EcoFreight Solutions for the year ending 31 December 2024 (figures in $000)
| Item | Amount ($000) |
|---|---|
| Sales revenue | 4,200 |
| Cost of sales | 2,400 |
| Operating expenses | 1,100 |
| Depreciation expense | 150 |
| Interest expense | 60 |
| Tax | 80 |
Table 2: Additional Financial Information
| Item | Amount ($000) |
|---|---|
| Capital employed | 5,500 |
| Current assets | 920 |
| Current liabilities | 800 |
| Initial investment for new project | 1,200 |
| Net annual cash inflow from project | 300 |
1.[2]
Calculate the payback period for the new automated sorting hub project. Show all your working.