IB Business Management SL 3.7 Cash flow Question Bank

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.

1. Suparman Fish ( SF )
Gepa Suparman owns and operates four fishing boats in Indonesia. There is a growing demand for canned (tinned) food, including cans of fish. Gepa wants to enter the secondary sector by opening a small factory producing cans of fish.
Gepa's business will be called Suparman Fish ( S F ) and will be a private limited company. Gepa will own all of the shares. The factory will be located in a village three miles from the harbour. Because unemployment is high in the village, Gepa should easily find workers for the new factory. In addition to the manager's salary, workers' wages, and the cost of fish, supplies, and cans, S F will have the semi-variable cost of electricity.
Gepa has prepared a four-month cash-flow forecast based on the following information:
- opening balance month 1: $ 15000.
- month 1 : sales revenue of $ 1000, increasing by 20 % per month.
- manager's salary: $ 300 per month.
- workers' wages: $ 175 per worker per month.

- variable costs (fish, supplies, and cans) are equal to 40 % of sales revenue.
- semi-variable cost of electricity: fixed cost of $ 100 per month, plus a variable cost of $ 0.10 per kilowatt hour (kwh). Month 1 usage: 100 kwh , increasing by 10 % each month.

Although S F would create several jobs in the village, many residents are not happy about the new factory. The new factory would use chemicals, which cause pollution. Residents are concerned about the unpleasant smells from the factory. A representative from the local employment office is concerned whether Gepa's factory will provide a safe working environment.

1. Las Migas
Carolina plans to set up a bakery, Las Migas, in a small town. Competition from established bakeries is strong. Carolina has asked for a bank loan because her personal savings are insufficient. The bank manager requested the following information:
- a business plan
- a cash flow forecast for the first four months of operations.
Carolina has no experience with financial forecasts but she estimated the figures for Las Migas for the first four months of operations. These figures are shown in Table 1.

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.

1. Make-Up (MU)
Lana Lane is an image coach and plans to open Make-Up (MU), a shop where she can sell her own brand of beauty products. Because Lana is a female entrepreneur, her local government will pay 50 % of the rent for the space in which M U will operate.
Lana has forecasted the following figures for M U for the first six months of operation, beginning on 1 July 2023 (see Table 1). The opening balance will be $ 0.

Lana has learned that a new competitor with lower prices will enter the market before the end of 2023.

1. Office Cleaners (OC)
Sayaka Toguchi operates an office cleaning service, which is in the tertiary sector. When office workers are going home, she arrives at their offices to clean them. At present, she has four clients, with commercial offices all located in the same building. She operates as a sole trader and has no employees. Her business name is Office Cleaners (OC).
Sayaka has always liked the small size of her business. However, when a large bank on the ground floor of the same building where her current clients are located offered her a contract to clean its offices, she decided to reconsider the size of her business. The bank would loan her $ 2500 to purchase new cleaning equipment. The bank would also offer her a two-year contract paying her $ 6000 every second month. Sayaka would need to employ one new worker to clean the bank.
For the bank contract, Sayaka forecasted the following monthly cash outflows:
- salary for one new employee: $ 2000
- cleaning products (soap, detergent): $200
- payment on equipment loan: $ 150 payable from the second month
- business taxes and overheads: $ 300.
Before the bank loan she currently has personal savings of $ 1600 in the bank.
Employee absence also worries Sayaka. How will she get all the offices clean if her new employee is absent from work due to illness? Agencies can provide temporary employees but they cost $ 300 a day per worker.

1. Sotatsu Electronics (SE)
Sotatsu Electronics (SE) manufactures electronic products and is famous for its innovative televisions. In late 2015, SE introduced a new high-definition television with twice the quality of the best-selling television of its chief competitor. Determining that it would be two years before its competitors could have a similar product, SE adopted a price skimming strategy.

1. Piper Industrial (PI)
Piper Industrial (P I) manufactures pipe. The company is highly profitable and its corporate tax rate is 20 % . P I is forecasting major capital expenditure for 2019.

1. Fishers
Fishers manufactures baseball caps. In 2017, it sold 75000 caps. The variable cost per cap was $ 6.70 % of Fishers's annual sales occur from April to September. Starting in March, Fishers experiences a significant increase in current assets and current liabilities, which start to decrease in October.

Sales price per cap will remain the same as in 2017.