12 marks
Define ‘opening balance’.
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Cash-Flow Forecasts & Working Capital (Cambridge (CIE) IGCSE Business)
Exam Questions
1 hour13 questions
24 marks
Case Study
Kemala makes high-quality beauty products. Demand for her best-selling hand cream is price inelastic. She advertises her products in specialist beauty magazines. Kemala is analysing her income statement. An extract is shown in the below table. She said: ‘When I started my business, I did not understand why cash is important’.
Extract from Kemala’s income statement 2021 ($000) | |
Revenue | 480 |
Gross profit | 192 |
Profit for the year | 72 |
Outline two reasons why cash is important for Kemala’s business.
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32 marks
Identify two reasons why a business might have cash-flow problems.
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44 marks
State four reasons why a business might have cash flow problems.
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5
2 marks
2 marksCase Study
LMA is a family-owned restaurant. The business was started 20 years ago and has remained small. LMA is a partnership. The partners are considering whether LMA should become a private limited company. The Finance Manager is analysing LMA’s cash-flow forecast. An extract is shown in Table 2.1.
Table 2.1 : Extract from LMA’s cash-flow forecast 2023 ($000)
July | August | September | |
|---|---|---|---|
Cash inflow | 420 | 300 | 330 |
Cash outflow | 410 | 320 | 360 |
Net cash flow | X | (20) | (30) |
Opening balance | 60 | 70 | 50 |
Closing balance | 70 | 50 | Y |
Calculate X and Y.
Show your working.
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64 marks
Identify four examples of a cash inflow.
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72 marks
Define 'net cash flow'.
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82 marks
2 marksCase Study
Veronique is bored with her work in a large factory. As a creative person, she would like to leave and start up a flower shop. Veronique has asked about micro-finance and prepared a cash flow forecast. An extract is shown in the below table. Veronique has also carried out some market research and found out that the demand for flowers is likely to be high during festivals. She thinks she has the right characteristics to be a successful entrepreneur.
Extract from the cash flow forecast for Veronique’s flower shop for the first 3 months ($) | |||
Month 1 | Month 2 | Month 3 | |
Cash in | 500 | 1 200 | 2 000 |
Cash out | 1 500 | 1 400 | 1 200 |
Net cash flow | (1 000) | (200) | 800 |
Opening balance | 0 | (1 000) | (1 200) |
Closing balance | (1 000) | (1 200) | (400) |
Veronique now thinks that the cash inflow in month 3 will be $1,500. Calculate the
New net cash flow in month 3
New closing balance in month 3
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16 marks
Case Study
NPX is an online retail business. All orders are sent directly to customers from its warehouse. NPX employs 60 full-time workers. The Operations Manager is analysing NPX’s cash-flow forecast. An extract is shown in Table 2.1. To improve productivity, the manager plans to introduce new technology that can select and pack all the items for each order. This will make 35 workers redundant. The technology will cost $40,000. The manager is considering using either internal sources or external sources to finance this technology.
Table 2.1: NPX’s cash-flow forecast for the period July – September 2021 ($000)
July | August | September | |
Cash inflows | 100 | 120 | 140 |
Cash outflows | 90 | 90 | 110 |
Net cash flow | 10 | 30 | 30 |
Opening balance | 5 | 15 | 45 |
Closing balance | 15 | 45 | 75 |
Explain two possible effects on NPX’s cash-flow forecast of introducing the new technology.
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28 marks
Explain two ways SSM’s cash-flow problems could be overcome.
Refer to the following insert when answering the question.
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38 marks
Explain four reasons why it is important that Zane prepares a cash-flow forecast before starting ET.
Refer to the following insert when answering the question.
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112 marks
12 marksConsider how the following three changes in HHP's cash flow forecast might affect the business.
A 20% increase in monthly cash inflows
A 15% decrease in monthly cash outflows
A $1 million injection of capital in July
Which change would have the greatest impact on HHP's working capital? Justify your answer.
Refer to the following insert when answering the question
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212 marks
Consider how the following three changes in HGL's cash flow forecast could affect the business.
Increase cash inflows by $100,000 per month
Reduce cash outflows by $75,000 per month
Arrange an overdraft facility of $200,000
Which change would have the greatest impact on HGL's working capital? Justify your answer.
Refer to the following insert when answering the question
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