CAIE IGCSE Business Studies 5.1 Business Finance Questions
Use this business-finance page to explain finance needs, apply working-capital issues and choose suitable finance sources for cases.
- Syllabus
- 2027–2029
- Course
- Business 0264
Exam points
- Explain why finance is needed for start-up, expansion, assets, technology or working capital.
- Apply working-capital problems to day-to-day bills, inventory and business survival.
- Choose finance sources by considering amount needed, time period, cost and risk.
Covered syllabus points
Question 1
[Maximum number: 8]
Explain two reasons why working capital is important to LB.
Reason 1:
Explanation:
Reason 2:
Explanation:
Explain two reasons why working capital is important to LB.
Award 1 mark for each reason why working capital is important (max 2).
Award a maximum of 3 additional marks for each explanation of why working
capital is important - one of which must be applied to this context.
Relevant reasons might include:
- To be able to pay for day-to-day expenses / fixed costs / variable costs /
overheads - if not able to pay for these costs then output cannot be
produced - and no products could be produced
- To prevent cash flow problems - so the business does not lack liquidity -and does not become insolvent / cease trading / not survive
- To support a bank loan application - as having enough working capital will
help to show an ability to repay the loan
- To be able to offer customers credit terms to encourage sales (1)
- To pay for unexpected expenses (1)
For example: Needed to pay day-to day expenses (1) as LB will need to buy
components to manufacture the bathroom equipment (app). If there is
insufficient working capital, the business may not have the cash to pay wages and other expenses (1) it will be difficult for LB to continue trading (1).
Application might include: luxury bathroom products;
baths/basins/showers;
started 20 years ago;
plan to produce a new range of bathroom products;
sells in specialist retail shops;
website contains information on product range;
operates in a very competitive market.
Question 2
[Maximum number: 6]
Amir and Carla are business partners. They own a luxury hotel which operates in a niche market. The business has a short hierarchical structure. Amir and Carla use Herzberg's theory of motivation to keep their 5 employees well motivated. Amir and Carla are considering opening another hotel in a different city. They will need to identify a suitable source of finance if they decide to expand. Secondary market research can be used to help a business decide whether it should expand.
Explain two sources of finance Amir and Carla could use if they decide to expand.
Source 1:
Explanation:
Source 2:
Explanation:
Award 1 mark for each relevant source of finance [max 2].
Award 1 mark for each relevant reference to this business [max 2].
Award 1 mark for each relevant explanation [max 2].
Points might include:
- Retained profits [k] from the hotel [app] as does not need to pay it back [an]
- Bank loans [k] to obtain a large amount of money/varying length of time to repay/quick to arrange [an] for the luxury service [app]
- Own(er) savings [k] from the 2 partners [app] as may be readily accessible/no interest to pay [an]
- Crowdfunding [k] as no interest to pay [an]
Other appropriate responses should be credited.
To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made.
The following words are likely to be appropriate for this question:
- (New) hotel or related words such as rooms
- (2) partners/partnership
- Luxury
- Niche market
- Different city
- Market research
Other appropriate examples can be credited.
Question 3
[Maximum number: 4]
Avtar owns a car repair business which operates in the private sector. It is a small business with 2 full-time employees. Avtar wants to find out the best way for a business to increase added value. Avtar's business needs finance for many reasons. Avtar wants to know how an economic recession might affect his business.
Outline one reason why Avtar might need each of the following types of finance:
Short-term finance:
Long-term finance:
Award 1 mark for each relevant reason for needing short-term/long-term finance (max 1 for each).
Award 1 mark for each relevant reference to this business (max 1 for each).
Points might include:
Short-term finance:
- Pay day-to-day expenses/provide working capital [k] for this private sector business [app]
- Pay wages/salary [k] of his 2 employees [app]
- Purchase inventory [k]
- To prevent cash-flow problem/improve the cash position [k]
Long-term finance:
- Purchase non-current assets or examples [k] for the repair business [app]
- Fund expansion/growth [k] in case he decides not to keep the business small [app]
- Fund takeover of another business [k]
- Develop new products/services [k]
Other appropriate responses should be credited.
To use words from the stem as application, the reference must be appropriate (i.e. make sense) in relation to the point being made.
The following words are likely to be appropriate for this question:
- (Car) repair / garage or examples
- 2 workers
- Full-time (employees)
- Private sector business
- Economic recession
- Small business
- Added value
Other appropriate examples can be credited.
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