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IB BM Finance Overall

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  • Explain TWO disadvantages of using payback period as an investment appraisal method.
    Short term approach, does not account for overall return / profit
  • True or false: Packaging costs can be classified as a fixed cost of production.
    False - these vary with the level of output
  • A firm takes out a bank loan. Explain whether this is a cash inflow or outflow.
    Initially inflow, before interest payments (outflow) and principal paid back (outflow)
  • Identify THREE cash inflows and THREE cash outflows.
    Any reasonable answer!
  • Identify FOUR external sources of finance
    Crowdfunding, business angels, share capital, bank loan, trade credit etc.
  • Identify THREE revenue streams that MrBeast (the Youtuber) has.
    YouTube itself, sponsorships with companies, MrBeast products
  • True or false: Above the line marketing by placing advertisements in local and national newspapers would be an example of variable costs.
    False
  • Identify THREE profitability ratios.
    Gross profit margin, profit margin, return on capital employed
  • Identify THREE internal sources of finance
    Personal funds, Retained profit, sale of assets
  • Gardeners’ Pots has total costs of $2,000 and fixed costs of $1,100 for an output level of 600 units. Calculate the variable cost per unit for the firm. [2 marks]
    TVC = TC – TFC = $2,000 – $1,100 = $900, AVC = $900 / 600 = $1.50
  • Outline TWO differences between the income statement of a non-profit entity vs. a for-profit entity.
    No dividends + surplus instead of profit
  • Explain TWO factors to consider the appropriate type of finance used.
    size of business, cost, purpose of funds, duration, external environment etc.
  • Explain the relationship between investment, profit & cash flow.
    Short vs. long run effects of investment on cash flows and profit.
  • Identify THREE examples of intangible assets.
    Patents, trademarks, brands, goodwill etc.
  • The formula for the payback period is... (assuming same cash flow for each period)
    Cost of investment / Contribution per month
  • Explain TWO disadvantages of using ARR as an investment appraisal method.
    Ignores timing of cash flows, forecast figures may not be accurate
  • How is profit before tax calculated? (start with gross profit)
    Gross profit - expenses - interest.
  • Explain TWO ways in which a firm could improve its acid test (quick) ratio.
    Extend trade credit, insist on paying in cash, change pricing strategies, improve stock management system
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