IB Business Management Topic 5.8 Research and…

NeuroTech Ltd.

NeuroTech Ltd. is a European health technology company that develops wearable brain-monitoring devices for medical research institutions. The firm has invested heavily in research and development (R&D) to remain at the forefront of innovation, allocating nearly 18% of annual revenue toward new product development.

Recently, NeuroTech faced a major crisis after a software malfunction in one of its products caused data losses at several hospitals. Although no patients were harmed, the incident received significant media coverage. The firm initiated its crisis management plan, issuing public statements, recalling affected devices, and offering free replacements. Internally, the board has asked for a review of the company's contingency planning and operational risk mitigation procedures.

Despite the crisis, NeuroTech is evaluating a new R&D investment in a second-generation neural interface. The project is expected to generate significant returns if successful. The finance department has prepared the following data to assist the board in evaluating its financial health and the viability of the investment.

Table 1: Financial Data – NeuroTech Ltd (2024)

(a) one way contingency planning may have helped NeuroTech Ltd. manage the product failure crisis.

(b) the return on capital employed (ROCE)

Show all your working.

(e) With reference to Tables 1 and 2 only, one comment on TerraVolt Ltd.’s profitability and one comment on its liquidity position.

(d) how NeuroTech’s current financial efficiency may influence its ability to manage R&D risk.

(e) one way NeuroTech can ensure its future R&D strategy balances innovation with operational risk management.

NexaHealth Equipment Ltd.

NexaHealth manufactures advanced diagnostic scanners for hospitals. Each scanner requires 72 imported components sourced using a just-in-time (JIT) model. NexaHealth spends £7.2 million annually on R&D, equal to 12% of its £60 million annual revenue, to maintain its innovation lead.

Last quarter, a global semiconductor shortage caused a six-week production delay, resulting in:

£3.4 million in lost hospital contracts
£620,000 in labour downtime costs
A drop in customer satisfaction from 92% to 77%

To manage this risk, the COO has proposed switching to a just-in-case (JIC) model for critical components, which would increase annual inventory holding costs by £1.5 million but reduce delay risk to below 1%. The operations team instead suggests investing £4.2 million in automation and adopting lean production and TQM practices to reduce dependency on external suppliers.

(a) the stock control method currently used by NexaHealth.

(b) how NexaHealth’s proposed JIC-based contingency plan could affect the business in terms of cost and risk.

(c) how NexaHealth’s proposed strategies (automation and adopting lean production and TQM practices) could help improve operational performance.

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)

Additional information:

The initial investment in machinery was €2,000,000.
Machinery has an expected useful life of 5 years and a residual value of €0.

(a) the profit before tax in 2024 for TerraVolt Ltd. (show your working). Give your final answer in €000s.

(b) TerraVolt Ltd.’s net book value of non-current assets as at 31 December 2024 (show your working). Give your final answer in €000s.

(c) Using the straight-line depreciation method, TerraVolt Ltd.’s annual depreciation expense based on the machinery investment (show your working). Give your final answer in €000s.

(d) the current ratio for TerraVolt Ltd. as at 31 December 2024 (show your working).

FlexFrame

FlexFrame is a European company that designs and assembles modular office furniture for B2B clients. Most of its production is done in-house at its central factory in Austria. FlexFrame promotes its use of lean production to reduce excess materials and shorten delivery times.

To support continuous improvement, FlexFrame recently introduced quality circles in its manufacturing division and is considering whether to implement total quality management (TQM) across the whole organization.

FlexFrame is also considering a contingency plan to reduce the risk of disruption (eg supplier failures for key components, machinery breakdowns, or transport delays) that could affect delivery reliability. The plan would include measures such as dual-sourcing critical components, holding additional safety stock of high-risk parts, and arranging backup logistics providers. Management estimates the plan would increase unit costs by 8% and delay the rollout of some new product/process changes due to extra supplier qualification and training requirements.

(a) one feature of lean production used by FlexFrame.

(b) one benefit and one risk of investing in R&D for FlexFrame.

(d) whether FlexFrame should implement the proposed contingency plan.

Global Solar Solutions (GSS)

(a) With reference to business management motivation theory, one need that GSS satisfies for rural households requiring solar lighting.

(b) one human resource challenge and one operations challenge GSS may face if it accepts the DRD expansion contract.

(c) Using all the resources provided and your knowledge of business management tools and theories, recommend a possible plan of action for GSS over the next five years.

(d) Using the stimulus and your knowledge of business management, which strategy NexaHealth should prioritise to improve operational resilience and long-term competitiveness. You may recommend one primary strategy or a phased approach, but you must make a clear first priority.

Revenue	12,000,000
Cost of sales	6,800,000
Operating expenses	4,400,000
Net profit	800,000
Capital employed	6,000,000
Average stock	1,200,000
Initial investment (R&D project)	2,500,000
Net cash inflow (Years 1–4)	850,000 p.a.

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	—

IB Business Management 5.8 Research and Development Questionbank

IB Business Management 5.8 Research and Development Questionbank

IB Business Management 5.8 Research and Development Questionbank

IB Business Management 5.8 Research and Development Questionbank

IB Business Management Topic 5.8 Research and Development Questionbank