University of Cumbria, Financial Management, September 2015: Assessment General Instructions â€“ Please read carefully
1. You are required to complete the assessment outlined below and submit your completed final document through the RKC Online Campus by the end of Unit 6. Your grade will be based 100% on this final document, to which you will also receive written feedback.
2. In addition you must upload part of your draft of the above document by the end of Unit 3 (see Interim Assignment, below). This draft will not be graded, but it is an important way of monitoring your progress. General feedback with respect to the topic(s) covered in the interim assignment will be posted on the Forum after Unit 3 has been completed.
3. Please ask any questions about the interim assignment and final assessment in the Forum.
You have been asked by your 55 year old uncle Andrew to help him assess a new venture. It is Friday night, and he needs the work finished by Sunday, in preparation for an early Monday morning meeting, so you know that he will not be able to give you any more information than he already has (and you will be unable to contact him over the weekend), and therefore you may need to rely on your own assumptions and estimates for some of the analysis.
Andrew lives in Atlanta, USA, and was recently made redundant (from a company he joined 25 years ago), leaving the company with a lump sum (tax paid) payment of $750,000. Surprisingly, rather than being depressed by his new state of independence, he is tired of corporate life and excitedly contemplating a new career as a retailer of a range of gourmet chocolates. He is confident that he can set up a business to import chocolates from Belgium and sell them in the USA. His wife, whom he met at business school, is pleased with his passion for this possible new venture, but concerned that it might turn into a financial disaster. She has suggested that he develop a financial plan to evaluate the venture and its viability.
After a couple of hours with Andrew you have assembled the following information from him: - ChocoBelg SA, an established manufacturer of fine Belgian chocolates, is prepared to give him exclusive rights to sell their products in the US for a five year period in exchange for an upfront payment;
- The chocolates retail in Belgium for an average of Euro 50 per kilogramme, and ChocoBelg is prepared to sell the chocolate to Andrew at a 40% discount to this price;
- ChocoBelg would ship to Andrew on receipt of payment for each order;
- Andrew has found out that air freight from Belgium via air courier would cost on average Euro 7 per kg and that the time from him placing an order to receiving the goods in Atlanta would be three weeks (including the factory time in Belgium);
- Andrew plans to order from Belgium monthly (to maximise the shelf life in the US) and intends to maintain a minimum stock of four weeks worth of sales to ensure that he will be able to supply a suitable range of products to customers;
- He will buy a special refrigerator at a cost of $4,500 to keep the chocolates in good condition, and has found a small industrial room he can rent nearby at a cost of $350 per month (payable monthly in advance, plus an initial three month deposit);
- Andrew will sell the chocolate throughout the US by internet only, and is planning to spend $2,000 with a website designer to develop the site;
- He has already spent $3,500 on a market study that told him that once established, demand would be about 1,500 kg a month, although in the first year sales would start at only 200 kg in the first month before building up slowly to the full level at the end of the first year;
- The study also indicated that sales would be dramatically above that average in October (2,500 kg) and January (2,000 kg) due to Thanksgiving and Valentines Day;
- The above study assumed an average selling price of $60 per kg (ignore any impact of sales taxes in your calculations);
- Packaging and shipping in the US would average $2 per kg, and Andrew is not currently intending to charge that to the customer;
- All sales would be by credit card, with the credit card company taking 1% per sale and remitting the monthly total to Andrew one week after the end of each calendar month;
- He believes that one person could run the chocolate operation part-time at a total cost (including social charges) of $2,650 per month;
- Andrewâ€™s believes that if necessary he could borrow up to an additional $50,000 at 8% p.a.;
- Andrewâ€™s marginal tax rate on investment or earned income is 30%, payable one year in arrears; he has also told you that he can invest any available cash at an after tax 4% per annum.
Andrew also has a friend, Juanita, who runs a small chain of delicatessens in the Atlanta area. Juanita is interested in the venture and has agreed that if Andrew would package the chocolates in boxes decorated with views of Brussels, she would buy one hundred boxes (each containing 550 gm of chocolates) from him per month (which would be in addition to the internet sales outlined above, and would start immediately), at a price of $28 each. To do this Andrew would need to buy-in boxes and wrapping paper at a price of $1.25 per box and hire an assistant specifically to pack and deliver the boxes, at an additional cost of $300 per month.
Andrew remembers discussions on discounted cash flow analysis at business school (although he admits that he did not fully understand it, unlike his wife who was a distinction student). He has asked you to prepare an analysis while he is away to help him with the decision, making clear any assumptions that you make; the analysis should not exceed 4,000 words (excluding the content of exhibits, headings, etc), or a total of 30 pages (everything included), and should include:
- A summary of all assumptions and estimates that you have made for your analysis, including justifications where appropriate;
- A break even analysis;
- A Balance Sheet at start-up (to show the initial capital) and at the end of the first year;
- Monthly cash flow for the first year of operation;
- Annual cash flow thereafter;
- A clear explanation, in plain English, of how much cash the venture will need to get started;
- Any sensitivity analysis that you think would be helpful;
- The most that Andrew could offer ChocoBelg as an upfront fee for the exclusive rights for the five year period which would leave him no better or worse off than if he did not undertake the venture, and the amount you suggest he should actually offer them;
- Conclusions and recommendations;
- A critical reflection of the analysis that Andrew has asked you to prepare â€“ what, if anything, would you do differently in a financial analysis of this opportunity, and why?
Andrew has explained that he is going to be out of town for a wedding so will be unable to provide any assistance at all, but as he pointed out before leaving â€œyou will find this easy with computers and the internet to helpâ€.
Your report should demonstrate skills of critical reflection, effective communication and balanced judgement; note that this is not a market report.
Scripts that are excessively long (i.e. exceeding the word limit by more than 10%) will not be read beyond the point of the word limit; there is no minimum word limit. Do not put your name on the paper.
The overall structure should be as follows:
1. Cover Page (1 page)
2. Table of Contents/List of Exhibits (1 page)
3. Executive Summary
4. Main Report (within the 4,000 word limit as above) 5. Exhibits (if any)
6. List of references.
The data in your answer should be clearly laid out in tabular format so that your approach and answer are both plainly evident.
Submissions should be machine readable and in MS-Word format only; submit only one file, and include any Excel analysis as images, not embedded files.
Grading will be based on the following breakdown:
- Assumptions, estimates and sensitivity analysis: 20% - Cash flow and DCF analysis: 25% - Other financial details (break even, balance sheet, etc): 25% - Critical reflection: 20% - Referencing and presentation: 10%
The Interim Assignment is to develop the Balance Sheet at start-up (to show the initial capital) and at the end of the first year which you will see is part of the required content of your final assessment paper.
General feedback on the classâ€™s submissions will be posted in the Forum during Unit 4. You may, if you wish, make any changes you wish to your balance sheets for your final assessment submission.
The Interim Assignment is not graded.
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ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼70% and above (Distinction)
ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼60% - 69% (Merit)
ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼50% - 59% (Pass)
ï¿¼ï¿¼ï¿¼ï¿¼40% - 49% (Fail)
ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼0% - 39% (Significant Fail)
ï¿¼ï¿¼ï¿¼ï¿¼Assumptions, estimates and sensitivity analysis (20%)
ï¿¼Excellent - wide range of key and peripheral assumptions, demonstrating critical evaluation and understanding of the issues
ï¿¼Substantial selection of key and peripheral assumptions, demonstrating analysis and critical evaluation of a wide range of relevant issues for the professional context.
ï¿¼ï¿¼Good selection of key and peripheral assumptions with critical evaluation of significant issues for the professional.
Limited selection of assumptions; some recognition and critical analysis of issues of significance for the professional context.
ï¿¼ï¿¼Limited evidence demonstrating poor recognition of significance for the professional context.
ï¿¼ï¿¼ï¿¼Cash flow and DCF analysis (25%)
ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼Excellent understanding of the theory and its application and subtleties
ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼Good exploration of knowledge and theory relevant to the assignment. Analysis and evaluation of concepts are critical and fairly insightful.
ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼Adequate exploration of knowledge and theory relevant to the assignment. Analysis and evaluation of concepts lacks criticality and insight.
ï¿¼ï¿¼ï¿¼ï¿¼Poor exploration of knowledge and theory relevant to the assignment. Analysis and evaluation of concepts are inadequate.
ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼Very weak or missing exploration of knowledge and theory relevant to the assignment. Analysis and evaluation of concepts are non-existent.
ï¿¼ï¿¼ï¿¼ï¿¼Other financial details (25%)
ï¿¼ï¿¼ï¿¼Excellent understanding of the theory and its application and subtleties
ï¿¼ï¿¼ï¿¼Good exploration of knowledge and theory relevant to the assignment. Analysis and evaluation of concepts are critical and fairly insightful.
ï¿¼ï¿¼ï¿¼ï¿¼Adequate exploration of knowledge and theory relevant to the assignment. Analysis and evaluation of concepts lacks criticality and insight.
ï¿¼ï¿¼ï¿¼Poor exploration of knowledge and theory relevant to the assignment. Analysis and evaluation of concepts are inadequate.
ï¿¼ï¿¼ï¿¼Very weak or missing exploration of knowledge and theory relevant to the assignment. Analysis and evaluation of concepts are non-existent.
ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼ï¿¼Critical reflection (20%)
Referencing and presentation (10%)
Excellent understanding of the strengths and limitations of the required analysis, with clear ideas on areas of improvement
Excellent piece of writing, well-structured, coherent progression of argument, well-articulated and accurately referenced, with excellent summary and clear conclusions and recommendations
Good understanding of the strengths and limitations of the required analysis, with some ideas on areas of improvement
Well written, well-structured, coherent progression of argument, reasonably articulated and accurately referenced.
Good summary, conclusions and recommendations
Adequate understanding of the strengths and limitations of the required analysis, with few ideas on areas of improvement
Fairly well written and structured, some coherence, some inaccuracies in referencing and minor issues with expression. Appropriate
Unclear understanding of the strengths and limitations of the required analysis, with few ideas on areas of improvement
Poorly written and structured, incoherent and inaccurately referenced. Lacks summary, conclusions and recommendations
Weak or confused understanding of the strengths and limitations of the required analysis
Very weak piece of writing. Incoherent and poorly articulated. Inaccurately referenced.
Lacks summary, conclusions and recommendations