FIN4001 Introduction to Finance

As part of the formal assessment for the programme you are required to submit an Introduction to Finance assignment. Please refer to your Student Handbook for full details of the programme assessment scheme and general information on preparing and submitting assignments.

Learning Outcomes:

After completing the module, you should be able to:

1. Contrast the appropriateness of the different sources of finance to a business.

2. Explain the implications of finance as a resource within a business.

3. Produce simple financial statements in accordance with accepted principles.

4. Use financial information for decision making purposes.

5. Demonstrate a confident use of the financial terminology and conventions in communicating results.

Your assignment should include: a title page containing your student number, the module name, the submission deadline and a word count; the appendices if relevant; and a reference list in Arden University (AU) Harvard format. You should address all the elements of the assignment task listed below. Please note that tutors will use the assessment criteria set out below in assessing your work. You must not include your name in your submission because Arden University operates anonymous marking, which means that markers should not be aware of the identity of the student. However, please do not forget to include your STU number.

Question 1

You are the Chief Financial Officer at Touchdown Sports Inc., a leading manufacturer of protective equipment for use in contact sports.

The company manufactures a range of products, including shoulder pads for use by players of American football. These pads comprise a hard plastic shell with foam padding underneath, metal rivets and elastic straps. Touchdown Sports Inc. sells all of its products to retailers on a credit basis.

Estimated annual usage of hard plastic in Touchdown Sports Inc’s manufacturing process is 27,000 kilograms. This is used evenly throughout the year other than during July and August, when production increases to meet demand due to the start of the American football season in September, and during November, when production increases to meet demand prior to the Christmas holiday in December. Inventory holding costs for hard plastic are estimated to be $1.75 per kilogram per year. The estimated cost of placing and processing each order of hard plastic is $14.

Required:

(a) Calculate the economic order quantity (EOQ) for hard plastic.

(b) Calculate the total annual cost of hard plastic.

(c) Critically evaluate Touchdown Sports Inc’s decision to use the EOQ model as part of its approach to the management of inventories.

(d) Advise Touchdown Sports Inc’s senior executive team on the comments made by Grace Rodriquez and Maria Cousins. Your advice should include an explanation of the costs of holding inventories, the costs of failing to manage inventories properly and the practical implications of managing inventories.

Required:

(a) Calculate the payback period for both option A and option B.

(b) Calculate the accounting rate of return for both option A and option B. Assume that the only difference between cash flow and profit is the depreciation charge.

(c) Critically evaluate the accounting rate of return technique.

(d) Advise the senior executive team on the comments made by Bill Brady and Xiaolin Peng. Your advice should include an explanation of the characteristics of investment appraisal decisions and the advantages and disadvantages of the internal rate of return technique.