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Question 1
(a) Identify and explain the principles of sound corporate governance practice.Illustrate your answers with relevant examples
(b) Identify and discuss the incentives to organisations of following sound corporate governance practice.
Question 2
Primetime plc is a major UK mobile telephone manufacturer. You have been given the following financial information for Primetime and the market leading competitor,Dimetime plc:Extracts from statements of current position from 
Primetime.



Question 3
Xporters is a medium sized private company whose ordinary shares are all owned by the members of the same family. It has recently begun exporting to a European country and needs to expand its operations to be able to fulfil future orders.All the family members are in favour of the planned expansion, but none are in a position to provide additional finance. The company is therefore seeking to raise external finance of approximately £1 million.Xporters’ has an existing bank borrowing facility, which is subject to an annual review and renewal but does not own its operating premises. In addition, most of its capital equipment is currently leased.


(a) Advise exporter of the range of funding sources that might be available to fund the expansion.
(b) Advise Xporters of the principal differences between the zero based and incremental budgeting methods.

Question 4
Wilson plc is considering investing in two projects: A and B. It can only invest in one
and you have been given the following financial estimates:

The company has a weighted average cost of capital of 9%.
(a) Calculate the accounting rate of return, payback period, discounted payback period and net present value for each project and advise the company as to which project to undertake.

(b) Compare and contrast the discounted and non-discounted methods of investment appraisal. Why do you think the discounted payback method is rarely used? 

Principles of Sound Corporate Governance Practice and Incentives

In general, the corporate accountability is considered with responsibilities and the obligations which provides an explanation and reasons for the conduct and actions of the company. In short sound corporate principles needs to be depicted in form of the understandable and balanced assessment of the financial position of the company along with the prospects.

The board is further responsible for assessment of the relevant activities which relates to business risks and internal control systems. A good corporate reporting assumes that board is depicted to maintain and establish transparent and arrangements along with assigning appropriate relationship with the auditor of the company. The board needs to also communicate with the stakeholders for fair and balanced assessment of the purpose which are necessary from the business perspective (Tricker and Tricker 2015).

In the corporate report published by Cadbury in he UK in 1991 has been able to outline that the company has followed a good CG system through which business activities controlled and directed in an appropriate manner. A good CG practice needs to be identified as per the key factors underpinning the integrity and efficiency of a particular company.

In case of depiction of poor CG practice, the company’s potential may be greatly reduced which can lead to significant nature of difficulty. Some of the other examples from the company’s potential can lead to difficulties in financial activities which may have long term impact and damage the reputation of the organization. A company applying the core principles needs to consider the CG, fairness, responsibility, transparency and accountability which will lead to attract more number of investors and support the financial growth (Barkemeyer et al. 2015).  

            It needs to be therefore seen that, companies applying the core principles as CG, fairness, responsibility, transparency and accountability are seen with organizations such as Coca Cola Amatil, Shell and British Petroleum. These organizations are seen with articulating the strategy to reinforce the company’s agency model. Moreover, these organizations have also considered the development of the robust planning framework, driven by relevant data and scope-of-work (Beekes, Brown and Zhang 2015). Some of the other reasons for these companies to follow a good CG strategy has been further depicted in terms of the different types of the other actions taken by the companies needs to be depicted as per the continuous effort to scout the agency industry for top talent (Flower 2015).

These organizations have not only identify the right agency partner but also maintain the best talent pertaining to the agencies in the business which will led to attract more number of investors and support for the financial growth (Joseph et al. 2016).   These agencies are also seen with the relevant actions required delivering the competitive edge needed to deliver the goals. Some of the other organizations such as Wesfarmers Group has been also able to excel in terms of core principles like engaging workers in a more enthusiastic and productive manner and taking responsibility for attracting fresh talent in the company.

Funding Sources for Medium-sized Private Companies Seeking to Expand

There is also seen to be relevant for rewarding the trainees in having a positive impact and appreciation. The companies need to be vulnerable for management to be anonymously figuring out the junior employees and getting to know about the ways the management engages their employees. In this manner the team members are also depicted to be avoid any instance of conflicts rather than providing actual opinion (Ni and Van Wart 2015).  

Part b

            The principle of the good governance considers that the stakeholders should be informed on the various activities of the company along with the plans which it intend to execute in the future. Transparency factor is referred with the openness and readiness for providing clear information to the stakeholders and other shareholders. For instance, transparency is associated to the openness and readiness for disclosure of financial performance to be accurate and true in nature. Moreover, the disclosure of information in the matters related to the performance of the organization needs to timely and accurately ensure the inventors has access to the information on the clear, factual, financial, social and environmental position of the organization.

The companies need to confirm responsibilities and roles of the board and management for providing the shareholders relevant level of accountability. The transparency factor ensures that there is full confidence among the stakeholders for making the appropriate decision making and management process associated to the company (Leipziger 2017).

            A strong CG ensures that the investors are able to maintain sufficient confidence for supporting further growth in the financial performance. The organizations involved in the implementation of sound corporate success and economic growth. The fairness concept is referred with the equal treatment of the stakeholders. For instance, all the shareholders needs to obtain  equal consideration for any shareholding in their belonging.  In different countries the fairness aspect of the corporate reporting is protected by the relevant laws.

However, it needs to be also seen that the companies also desire to opt for the appropriate shareholder agreement which is directly associated with including extensive and effective minority protection. Moreover, the shareholders should be done in a fairness based on the treatment of the stakeholders by considering the opinions of the employees, communities and public officials. It needs to be seen that more fairer is the entity for the stakeholders, the more likely it will survive the pressure of the interested parties (Ioannou and Serafeim 2017).

Comparison of Investment Appraisal Methods

            The board of directors are also depicted to provide the relevant opportunity which is seen to be depicted as per the different types of the concepts associated to act on behalf of the company. The companies need to therefore accept the various types of the propositions for ensuring that the directors are responsible for monitoring the performance of the company. Moreover, accountability needs to be considered as per the hand in hand with the responsibility factor. In addition to this, the board of directors are also seen to be responsibility of accountability pertaining to the way company carries out the responsibilities (De Villiers, Rouse and Kerr 2016).

Question 2 

 

The above table shows that the profitability ratios of the business which are operating profit ratio, net profit ratio, return on assets and return on equity. The gross profit margin of Dimetime Plc which is 52.38% is shown to be more than Primetime Plc which is shown to be 20%. The net profit margin of Dimetime Plc is shown to be better than Primetime Plc which suggest that the financial structure Dimetime Plc is better (Lartey, Antwi and Boadi 2013). The return on assets and equity of the business are considered to be financial indicators for the overall success of the business. Both the estimates are shown to be more for Dimetime Plc in comparison to Primetime Plc.

The liquidity ratios of the business show the ability of the business to meet the current obligation of the business (Bolek 2013). The current ratio and quick ratio for Primetime Plc is shown to be 12 which is shown to be more than the estimates shown for Dimetime Plc.

Question 3

Part a

The business of Xporters can select the following sources of finance for the purpose of funding the activities of the business:

  • Bank Loan: The business of Xporters can take a loan for the purpose of financing the planned expansion of the business. The business can avail for loans from banks in exchange for some collateral securities. As per the anticipation of the business, the amount of external finance which the company needs to raise is shown to be $ 1 million. The bank loan is a smart solution towards financing of a business and the same has the option of being either short term or loan in nature (Lee, Sameen and Cowling 2015). In addition to this, Loan is considered to a be cheap source of finance and the source also has tax benefits as the business can get deductions for interest payments which are made towards the loan.
  • Friends: The members of Xporters can also raise funds from friends which can also be considered as loans (Khan 2015). The management can accumulate loans from the friends and other relatives even though they do not play an active role in day to day management of the business.
  • Angel Investors: This reflects a high-profile investor who can invest significant amount of funds in the business in return for a stake holding in the business. The Angel investors basically wants a partnership claim in the business (Ding, Sun and Au 2014). These types of practices are often followed by businesses for the purpose of meeting the financing requirement of the business.
  • Venture Capital: This is one of the popular sources of financing and is quite similar to Angel Investors option. In this option, a group of individuals provides finances for the business and manages the assets of the company (Maula and Murray 2017). Venture Capitalists of the business invests in companies which has a strong financial record or background.

Part b

Point of Distinction

Zero Based Budgeting

Incremental Based Budgeting

1.      Base for Budgeting

This type of budgeting is done by considering the base to be zero and the budget is prepared without considering the budgets which is prepared for previous year (Ekanem 2014).

In this type of Budget, the changes are made to the budgets which was prepared in previous and the same is used for the current year.

2.      Allocation of Resources

In this type of Budgeting, the maximum resources are allocated to those sources which can generate more revenue or profits for the business.

This sort of budget doe not give any priority to vital areas of the business and the budget mainly makes changes to previous budget by incorporating the inflation factor in the same.

3.      Wasteful Expenses

This budget is prepared by the business for the purpose of ensuring that the wastage of the business is at minimum

This type of budget incorporates wastage as a part of the budgeting process (Citi 2013).

4.      Innovation

This type of budget allows the business to bring about innovative practices in the organization.

This type of budget does not allow innovation and promotes a conservative mindset.


The above table shows the various investment appraisal techniques which are applied for the purpose of establishing the viability of a project. The NPV analysis which shows whether a project will be generating profits or loss for the business is shown to be favorable for Project B as the NPV of the same is computed to be higher than Project A. The accounting rate of return and payback period which is shown for the project is shown to be higher for Project B in comparison to Project A which is shown to be a favorable sign for the business (Almarri and Blackwell 2014). In addition to this, the discounted Payback period is also shown to be favorable for Project B. This clearly indicates that the business should select Project B as the same is shown to be more profitable than Project A.

Part b

The main difference between the discounted and non-discounted investment appraisal techniques is the application of the concept of time value of money. In discounted appraisal techniques the concept of time value of money is considered and therefore the techniques are known to reflect accurate results (Hoesli and MacGregor 2014). In case of Non-Discounted Appraisal techniques, the concept of time value of money is not considered and therefore the same is not reflecting the accurate results.

The discounted payback period is not used very often as the investment appraisal techniques and the same does not reflect accurate results. The payback period also does not show accurate result even in case of discount rate is considered.

Reference

Almarri, K. and Blackwell, P., 2014. Improving risk sharing and investment appraisal for PPP procurement success in large green projects. Procedia-Social and Behavioral Sciences, 119, pp.847-856.

Barkemeyer, R., Stringer, L.C., Hollins, J.A. and Josephi, F., 2015. Corporate reporting on solutions to wicked problems: Sustainable land management in the mining sector. Environmental science & policy, 48, pp.196-209.

Beekes, W., Brown, P. and Zhang, Q., 2015. Corporate governance and the informativeness of disclosures in A ustralia: a re?examination. Accounting & Finance, 55(4), pp.931-963.

Bolek, M., 2013. Profitability as a liquidity and risk function basing on the new connect market in Poland. European Scientific Journal, ESJ, 9(28).

Citi, M., 2013. EU budgetary dynamics: incremental or punctuated equilibrium?. Journal of European Public Policy, 20(8), pp.1157-1173.

Crowther, D. and Aras, G., 2016. Corporate governance and corporate social responsibility in context. In Global perspectives on corporate governance and CSR (pp. 23-64). Routledge.

De Villiers, C., Rouse, P. and Kerr, J., 2016. A new conceptual model of influences driving sustainability based on case evidence of the integration of corporate sustainability management control and reporting. Journal of cleaner production, 136, pp.78-85.

Ding, Z., Sun, S.L. and Au, K., 2014. Angel investors’ selection criteria: A comparative institutional perspective. Asia Pacific Journal of Management, 31(3), pp.705-731.

Ekanem, E.E., 2014. Zero-based budgeting as a management tool for effective university budget implementation in University of Calabar, Nigeria. European Journal of Business and Social Sciences, 2(11), pp.11-19.

Flower, J., 2015. The international integrated reporting council: a story of failure. Critical Perspectives on Accounting, 27, pp.1-17.

Hoesli, M. and MacGregor, B.D., 2014. Property investment: principles and practice of portfolio management. Routledge.

Ioannou, I. and Serafeim, G., 2017. The consequences of mandatory corporate sustainability reporting.

Joseph, C., Gunawan, J., Sawani, Y., Rahmat, M., Noyem, J.A. and Darus, F., 2016. A comparative study of anti-corruption practice disclosure among Malaysian and Indonesian Corporate Social Responsibility (CSR) best practice companies. Journal of cleaner production, 112, pp.2896-2906.

Khan, S., 2015. Impact of sources of finance on the growth of SMEs: evidence from Pakistan. Decision, 42(1), pp.3-10.

Lartey, V.C., Antwi, S. and Boadi, E.K., 2013. The relationship between liquidity and profitability of listed banks in Ghana. International Journal of Business and Social Science, 4(3).

Lee, N., Sameen, H. and Cowling, M., 2015. Access to finance for innovative SMEs since the financial crisis. Research policy, 44(2), pp.370-380.

Leipziger, D., 2017. The corporate responsibility code book. Routledge.

Maula, M. and Murray, G., 2017. Corporate venture capital and the creation of US public companies: The impact of sources of venture capital on the performance of portfolio companies. Creating value: Winners in the new business environment, pp.161-183.

Ni, A. and Van Wart, M., 2015. Corporate Social Responsibility: Doing Well and Doing Good. In Building Business-Government Relations (pp. 175-196). Routledge.

Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices. Oxford University Press, USA.

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