Sources of Finance (DP IB Business Management: HL): Exam Questions

Coastal Gardens Landscaping is a small business specialising in designing and maintaining bespoke gardens for high-end residential clients. The company has built a strong reputation for quality and attention to detail. Recently, Coastal Gardens secured a large contract to landscape a luxury seaside resort.

To complete this project, the business needs additional capital to purchase specialised equipment and hire temporary staff. Coastal Gardens is considering two financing options: seeking angel investment or applying for government grants for small businesses. Management is focused on ensuring cash flow stability while financing the expansion.

Coastal Gardens Landscaping is a small business specialising in designing and maintaining bespoke gardens for high-end residential clients. The company has built a strong reputation for quality and attention to detail. Recently, Coastal Gardens secured a large contract to landscape a luxury seaside resort.

To complete this project, the business needs additional capital to purchase specialised equipment and hire temporary staff. Coastal Gardens is considering two financing options: seeking angel investment or applying for government grants for small businesses. Management is focused on ensuring cash flow stability while financing the expansion.

Summit Sportswear is a medium-sized business specialising in high-performance outdoor clothing. The company is known for its innovative designs and eco-friendly materials. Due to increasing demand, Summit plans to open a new flagship store in a major city, requiring significant capital for renovations, inventory, and staff recruitment.

The management team is considering financing this expansion through trade credit or a long-term bank loan. They are particularly concerned about balancing short-term cash flow with the long-term financial health of the business.

Summit Sportswear is a medium-sized business specialising in high-performance outdoor clothing. The company is known for its innovative designs and eco-friendly materials. Due to increasing demand, Summit plans to open a new flagship store in a major city, requiring significant capital for renovations, inventory, and staff recruitment.

The management team is considering financing this expansion through trade credit or a long-term bank loan. They are particularly concerned about balancing short-term cash flow with the long-term financial health of the business.

Radiance Fitness is a boutique gym offering high-end fitness classes and personal training sessions. The gym has gained a reputation for its excellent trainers and state-of-the-art equipment, attracting a growing membership base. To accommodate this demand, Radiance Fitness plans to open a new training studio and purchase advanced fitness machines.

The estimated cost of the expansion is £100,000. The management is evaluating two financing options: seeking venture capital investment or using crowdfunding to raise the necessary funds. Radiance Fitness aims to maintain its premium image while ensuring smooth operations during the expansion.

Radiance Fitness is a boutique gym offering high-end fitness classes and personal training sessions. The gym has gained a reputation for its excellent trainers and state-of-the-art equipment, attracting a growing membership base. To accommodate this demand, Radiance Fitness plans to open a new training studio and purchase advanced fitness machines.

The estimated cost of the expansion is £100,000. The management is evaluating two financing options: seeking venture capital investment or using crowdfunding to raise the necessary funds. Radiance Fitness aims to maintain its premium image while ensuring smooth operations during the expansion.

UrbanEats Ltd. operates a chain of street food stalls in major cities. To expand its operations, the company secured a short-term one-year business loan of $135,000 at an annual interest rate of 6.3%, with interest calculated on the initial loan amount and paid annually. The loan amount will be repaid in full at the end of the year.

TechNova Electronics is a multinational corporation based in Germany. The company makes popular consumer electronics such as smartphones, wearable devices and smart home products. Founded 20 years ago, TechNova has become a global leader in its industry, known for its innovative designs and reliable products. In the last ten years, the company has expanded quickly into developing markets such as Brazil, South Africa and Vietnam, where it has opened factories and shops

TechNova’s strategy is to produce its products in countries where costs are lower and sell them at competitive prices. This approach has helped the company significantly grow its market share in developing markets. In 2020, TechNova held 15% of the market share in these regions, which increased steadily to 30% by 2023. However, some people have criticised TechNova for its practices. In Brazil, workers at TechNova factories say they are paid low wages and that working conditions are not always safe. In South Africa, small businesses say they cannot compete with TechNova’s low prices, which is harming local industries

Despite these challenges, TechNova believes it has brought benefits to the countries where it operates. The company has created thousands of jobs, introduced new technology and invested in local infrastructure. However, a recent employee survey revealed differences in motivation levels between regions. In Germany, 80% of employees feel motivated and supported, but this drops to 55% in Brazil and 60% in South Africa. Workers in these regions have cited low pay, unclear career paths and limited training as barriers to engagement

TechNova’s management is also thinking about how to keep its strong organisational culture as it grows. The company values innovation and teamwork, but these principles are harder to maintain across international operations. To address this, the company is looking at improving its training and support programmes for workers in developing countries

TechNova’s expansion and new projects are funded through profits, loans and corporate bonds. Now, the company is considering raising money by selling shares. This would help fund a new range of budget smartphones designed for customers in developing countries. The management is also discussing how to balance the company's rapid growth with maintaining good relationships with its employees and communities

Table 1: Financial overview (2023)

Table 2: Employee survey results (2023)

BrightGrow is a private limited company that operates nurseries, supplying ornamental plants to homeowners and garden centres. Its main facility is located near a major highway, ensuring efficient delivery routes to regional customers. Known for its eco-friendly practices, BrightGrow uses organic fertilisers and water-efficient irrigation systems, aligning with its mission to promote sustainable gardening

To meet growing demand, BrightGrow is considering opening a second nursery in a neighbouring region. The new facility is expected to cost $300,000, covering land purchase, construction and greenhouse setup. The expansion has gained support from local government representatives due to its potential to create jobs and boost the regional economy. However, environmental groups have expressed concerns about habitat disruption caused by the project

BrightGrow’s management is exploring various options to finance the expansion. The company has historically relied on retained profits and short-term loans for projects. While retained profits are available, the finance director is concerned that using too much of this reserve might limit flexibility for future investments. A bank loan is being considered, but the operations manager expressed caution about increasing long-term liabilities, especially as current repayments already account for a significant portion of cash flow. Another potential option is applying for a government grant. The CEO believes that this would align well with BrightGrow’s sustainability goals, but the finance team has raised concerns about the competitiveness of the application process and the time required to secure approval

Key factors being evaluated include market potential, transportation infrastructure, environmental impact and stakeholder opinions. The proposed location offers good road links and proximity to the target market, which could reduce delivery times and costs. BrightGrow also aims to ensure that the new nursery aligns with its sustainability goals while meeting the needs of its expanding customer base

Table 1: Financial and operational metrics (2023)

Table 2: Location and financing evaluation

Table 3: BrightGrow – Extracts from statement of financial position (2023)