IB Business Management HL –
Finance Exam Questions and
Complete Answers (2025-2026)
Edition.
Start-up Capital - Answer Capital needed by an entrepreneur to set up a business
Working Capital - Answer The capital needed to pay for raw materials, day-to-day running
costs and credit offered to customers; it is the finance a business has to operate its daily
activities
Working Capital Formula - Answer Current Assets - Current Liabilities
What is Finance required for? - Answer - Start-up Capital
- Working Capital
- Expansion Costs
- Sudden Expense needs or situations
- R&D
Capital Expenditure - Answer Purchase of assets used for more than 1 year, it is recorded as a
fixed asset
Revenue Expenditure - Answer Spending on items for operations or transactions for a specific
operating period that is consumed relatively quickly in a short time period
Internal Sources of Finance - Answer Finance raised from the business' own assets or retained
profits
Example of Internal Sources of Finance - Answer - Personal finds
- Retained Profits
- Sale of Assets
- Managing working capital more efficiently
,Pros and cons of Personal Finds - Answer Pros
- Control
- Interest Free
Cons
- Opportunity cost of using it elsewhere (e.g. saving in bank)
Retained Profits - Answer The profit left after all deductions, including dividends and is
reinvested in the business as a source of finance ('ploughed back')
Pros and cons of using Retained Profits as SoF - Answer Pros
- Permanent Source, there's no payback required
Cons
- Unreliable after tax and dividends, may be too little
Sale of Assets - Answer When a business sells off its unwanted or unused assets to raise
finance or when they sell it then lease it back
Pros and cons of Sale of Assets for a SoF - Answer Pro
- Earning from assets that aren't used
Con
- Leasing Charge
- May be useful in the future
How do firms manage working capital more efficiently for a SoF? - Answer Reducing working
capital for stocks and credits so this capital can be released to use elsewhere
Pros and Cons of managing working capital more efficiently for SoF - Answer Pro
- No direct costs
Con
- Could possibly reduce liquidity to risky levels
External Sources of Finance - Answer Finance raised from sources outside the business
, What are some medium-term external sources of finance? - Answer Hire purchase; Leasing
What are some long-term external sources of finance? - Answer Long-term loans; Debentures;
Sale of Shares; Rights issuing; Grants; Venture Capitalist; Business angels; Subsidies; Micro
finance
Overdraft - Answer bank agrees to a business borrowing up to an agreed limit as and when
required
Pro and Con of Overdraft - Answer Pro=Flexible; Con=Possibly High interests
What is Trade Crediting? - Answer Delaying payments to creditors
Pro and Con of Trade Credits - Answer Pro=No Interest; Con=Loss of discounts or trust in the
relationship
Debt-Factoring - Answer selling of claims over debtors to a debt factor in exchange for
immediate liquidity - only a proportion of the value of the debts will be received as cash
Pro and Con of Debt Factoring - Answer Pro=Releases liquidity from accounts receivable;
Con=Full value will not be recouped
Hire Purchase - Answer an asset is sold to a company that agrees to pay fixed repayments over
an agreed time period - the asset belongs to the company once it is all paid for
Pro and Con of Hire Purchase - Answer Pro=No large initial payment; Con=More expensive
Leasing - Answer Obtaining the use of equipment or vehicles and paying a rental or leasing
charge over a fixed period. This avoids the need for the business to raise long-term capital to
buy the asset. Ownership remains with the leasing company.
Pros and Cons of Leasing - Answer Pro
- Full access and use without large amounts of payment
Cons
Finance Exam Questions and
Complete Answers (2025-2026)
Edition.
Start-up Capital - Answer Capital needed by an entrepreneur to set up a business
Working Capital - Answer The capital needed to pay for raw materials, day-to-day running
costs and credit offered to customers; it is the finance a business has to operate its daily
activities
Working Capital Formula - Answer Current Assets - Current Liabilities
What is Finance required for? - Answer - Start-up Capital
- Working Capital
- Expansion Costs
- Sudden Expense needs or situations
- R&D
Capital Expenditure - Answer Purchase of assets used for more than 1 year, it is recorded as a
fixed asset
Revenue Expenditure - Answer Spending on items for operations or transactions for a specific
operating period that is consumed relatively quickly in a short time period
Internal Sources of Finance - Answer Finance raised from the business' own assets or retained
profits
Example of Internal Sources of Finance - Answer - Personal finds
- Retained Profits
- Sale of Assets
- Managing working capital more efficiently
,Pros and cons of Personal Finds - Answer Pros
- Control
- Interest Free
Cons
- Opportunity cost of using it elsewhere (e.g. saving in bank)
Retained Profits - Answer The profit left after all deductions, including dividends and is
reinvested in the business as a source of finance ('ploughed back')
Pros and cons of using Retained Profits as SoF - Answer Pros
- Permanent Source, there's no payback required
Cons
- Unreliable after tax and dividends, may be too little
Sale of Assets - Answer When a business sells off its unwanted or unused assets to raise
finance or when they sell it then lease it back
Pros and cons of Sale of Assets for a SoF - Answer Pro
- Earning from assets that aren't used
Con
- Leasing Charge
- May be useful in the future
How do firms manage working capital more efficiently for a SoF? - Answer Reducing working
capital for stocks and credits so this capital can be released to use elsewhere
Pros and Cons of managing working capital more efficiently for SoF - Answer Pro
- No direct costs
Con
- Could possibly reduce liquidity to risky levels
External Sources of Finance - Answer Finance raised from sources outside the business
, What are some medium-term external sources of finance? - Answer Hire purchase; Leasing
What are some long-term external sources of finance? - Answer Long-term loans; Debentures;
Sale of Shares; Rights issuing; Grants; Venture Capitalist; Business angels; Subsidies; Micro
finance
Overdraft - Answer bank agrees to a business borrowing up to an agreed limit as and when
required
Pro and Con of Overdraft - Answer Pro=Flexible; Con=Possibly High interests
What is Trade Crediting? - Answer Delaying payments to creditors
Pro and Con of Trade Credits - Answer Pro=No Interest; Con=Loss of discounts or trust in the
relationship
Debt-Factoring - Answer selling of claims over debtors to a debt factor in exchange for
immediate liquidity - only a proportion of the value of the debts will be received as cash
Pro and Con of Debt Factoring - Answer Pro=Releases liquidity from accounts receivable;
Con=Full value will not be recouped
Hire Purchase - Answer an asset is sold to a company that agrees to pay fixed repayments over
an agreed time period - the asset belongs to the company once it is all paid for
Pro and Con of Hire Purchase - Answer Pro=No large initial payment; Con=More expensive
Leasing - Answer Obtaining the use of equipment or vehicles and paying a rental or leasing
charge over a fixed period. This avoids the need for the business to raise long-term capital to
buy the asset. Ownership remains with the leasing company.
Pros and Cons of Leasing - Answer Pro
- Full access and use without large amounts of payment
Cons
