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7115 · 5.1

Business finance — practice questions

Practice and worked examples for 7115 Business finance. Short previews only — attempt the full question in MarkScheme against the official scheme.

Worked example 1

Successful café owner plans a second branch. Identify finance needs and classify as capital or revenue expenditure.

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Capital expenditure: Shop fit-out, coffee machines, furniture — long-term assets on balance sheet (10.1.1).

Revenue expenditure: First month's rent, staff wages, coffee beans, utilities — day-to-day running costs.

Working capital need (5.1.2): Cash to cover gap between paying suppliers and receiving customer cash — especially first months when sales building.

Total finance need: CapEx + 3–6 months working capital buffer before branch breaks even (5.4.4).

Worked example 2

Creative Crafts Ltd. plans to launch a new line of wooden toys. They have estimated the following costs: New woodworking lathe: $8,000; Specialist cutting tools: $1,500; Initial purchase of wood and paint: $2,500; Marketing flyers and social media ads for launch: $500; Additional electricity and workshop rent for the first month: $300. Calculate the total initial finance required and classify each cost as either capital or revenue expenditure.

Show solution outline

Step 1: Identify and classify Capital Expenditure (Capex) This is spending on long-term assets that will be used for more than one year.

  • New woodworking lathe: 8,0008,000
  • Specialist cutting tools: 1,5001,500 **Total Capital Expenditure = 8,000+8,000 + 1,500 = 9,500∗∗9,500**

Step 2: Identify and classify Revenue Expenditure This is spending on day-to-day running costs consumed within a year.

  • Initial purchase of wood and paint (raw materials): 2,5002,500
  • Marketing flyers and ads (promotion): 500500
  • Additional electricity and rent (overheads): 300300 Total Revenue Expenditure = 2,500+2,500 + 500 + 300=300 = 3,300

Step 3: Calculate Total Finance Required This is the sum of both types of expenditure needed to get the project started.

  • Total Finance = Total Capital Expenditure + Total Revenue Expenditure
  • Total Finance = 9,500+9,500 + 3,300 = 12,80012,800

Conclusion: Creative Crafts Ltd. requires a total of $12,800 in finance to launch the new product line. This consists of $9,500 for capital investment and $3,300 for initial operating expenses.

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