IB Business Management SL 3.2 Sources of finance Question Bank

1. Nzuri Kio (NK)
Nzuri Kio ( N K ) is a company that manufactures products made of glass, such as windows and table tops. NK sells its products in its own regional trading bloc, a group of eight countries that all have developing economies. NK is located in a poor country where the national government is not very efficient and public sector services are limited. The country's infrastructure needs investment, and quality of life is low. At school, students are in very big classes, with over sixty students in each; few students complete middle school.
The manager of N K is considering purchasing new, high-quality equipment for its factory: glass-making machines from Carrucci SpA. Carrucci SpA is an Italian company that makes the best glass manufacturing equipment in the world. Its computerized equipment is innovative and very efficient. Glass can be cut perfectly, with almost no waste. However, the equipment is expensive and requires highly skilled workers. The new equipment would lead to a better product, which should result in higher sales and a higher gross profit margin.
The total cost of the equipment is $ 800000. NK is considering two different sources of finance:
- (Option A) a seven-year $720000 bank loan.
- (Option B) selling $ 800000 in shares.
Financial information for N K, for the year ending 31 May 2014:

1. MiniVS (MV)
MiniVS (MV) imports light bulbs, which it sells business to business (B2B) to customers in the UK. In 2020, MV ran into cash-flow problems and had to use debt factoring.
M V has now solved its cash-flow problems. It operates a cost-plus (mark-up) pricing strategy and places a 100 % mark-up on the light bulbs that it purchases from suppliers.
The forecasted opening cash balance for January 2021 is £ 20000.

The finance director is concerned that the online market for light bulbs in the UK is becoming increasingly price competitive. She believes that if suppliers raise prices in the second half of 2021 , M V will have to abandon its cost-plus (mark-up) pricing strategy to be price competitive.

MS Cars (MSC)

Migrieve Shah owns a business, MS Cars (MSC), that sells used (second-hand) cars.
In the first four months of 2025, MSC's sales fell by 20 % compared with the same months in 2024.
On 1 May 2025, Migrieve arranged an overdraft from her bank, as a fall in sales caused liquidity problems for her business. She has forecasted the figures shown in Table 1 for MSC for the next four months of 2025 (June to September).

The majority of MSC's customers use a bank loan to finance car purchases.

2. DuffJD
DuffJD provides a laundry service for towels and sheets to three hotel chains in a major city, Hoyluk. It provides each hotel chain with trade credit.
Competition in this market is increasing, as two rivals are planning to offer laundry services to hotel chains in Hoyluk.

2. Anubis
Tom operates Anubis as a sole trader, selling cell/mobile phone cases on the internet. The market is increasingly competitive. The retail price of phone cases is predicted to fall in the second quarter of 2018. Employees at Anubis will receive a 3 % rise in wages starting from 1 April 2018.
Tom has forecasted the following monthly cash outflows for January through March 2018:
- Heating and lighting: $ 4000.
- Wages: $ 50000.
- Packaging: $ 15000.
- Delivery charges: 5 % of sales revenue.
- Cost of goods sold: $ 220000.
Additional information:
- Opening balance on 1 January 2018: $ 8000.
- Sales revenue: $ 300000 each month.
- Rent of $ 2000 paid quarterly: first payment in January 2018.
- Receipt of a tax refund in February 2018: $ 3000.