Managerial Finance Coursework Front Sheet

Page 1of 10 BIRMINGHAM CITY BUSINESS SCHOOL POSTGRADUATE DEGREES COURSEWORK FRONT SHEET MODULE TITLE : Managerial Finance MODULE CODE: ACC7032 LECTURER: Amerdeep Jakhu (ML) ISSUE DATE: 25 th January 2021 HAND IN DATE: 5th May 2021 at 12.00pm (midday) HAND BACK DATE: 8th June 2021 Learning outcomes and pass attainment level: ? Evaluate the different competing financial objectives of the firm and the agency problem between shareholders and managers in publicly listed companies. ? Demonstrate the ability to analyse financial data, conduct cost-benefit analysis and financial planning for effective business decisions using spreadsheet software package. ? Critically evaluate investment projects using appropriate investment appraisal techniques to assess suitability and viability of the projects consistent with the overall strategy and business model(s) of the firm. ? Critically appraise the major issues of capital management, relative advantages and disadvantages from the various perspectives of the stakeholders of the firm. General guidance The assessment for this unit is one coursework assignment. The required mark has been set at 50%. Ifyou are attempting afirst or second re-sit attempt your pass mark will be capped at 50%. This is an individual assessment. Whilst there is no objection to you discussing the content of this assignment with your peers, your final submission must be completely your own work. Plagiarism and copying will not be tolerated and may lead to subsequent penalties Page 2of 10 being imposed. This is an individual assignment and all calculations, analysis and narrative submitted must be your own work. The assignment will require aconsiderable personal investment of time and effort. Structure of the assignment There are three separate questions included within the assignment and you should attempt all three questions. There is no word limit to questions. If any part of the assignment is ignored this reduces the maximum marks which could potentially be awarded. The assignment answer should be carefully checked before submission for the use of appropriate and acceptable grammar. The correct use of English spelling is to be employed throughout. All the numbers should be reported in 2decimal points. Submission of the assignment All three questions must be attempted and submitted in one document. You are advised to prepare your assignment in Word format and copy and paste contents from Excel where spreadsheets have been used to support your work. Only Microsoft Word file will be allowed for submission. Your student ID number should be shown on each page of your assignment. Your assignment should be submitted electronically via Moodle and you are advised to do this well in advance of the submission deadline to avoid any system related issues. Feedback on your assignment will also be provided via Moodle once the marking has been completed. Marking of the assignment The matrix on the following page has been provided to assist you in completing your assignment and is an indicative guide only, not aformal marking scheme. Page 3of 10 Indicative marking guide Fail (0%-49%) Pass (50%-59%) Commendation (60%-69%) Distinction (70%-100%) Question 1: LO1 (40%) A lack of breadth and depth of financial analysis techniques accompanied by incorrect formulae or calculation without appropriate explanation. Poor layout or presentation in anything other than business report style. Inadequate grammar and lacking in overall knowledgeable synthesis. Evidence of some financial analysis techniques but with errors of formulae and calculation with insufficient explanation and adequate presentation. Attempt at abusiness report format with some supportive appendices. Mainly descriptive with some attempt at synthesis. Grammar and structure being adequate. Wide range of financial analysis techniques evident and supported by full disclosure of formulae and accurate calculation in aclear format. Presented in business report format and coherently structured. Supported by referenced appendices. Effective and well-reasoned narrative discussion. An excellent range of financial analysis techniques which are supported by full disclosure of formulae and accurate calculation in aclear format. Excellent business report format and well structured. Supported by fully referenced appendices. Excellent analytical and justified explanations showing synthesis and application. Question 2and 3LO2, LO3 and LO4 (60%) A lack of understanding of management accounting and decision making. Unable to produce the correct format and calculations. Limited or no narrative discussion or recommendations and conclusions. Poor academic writing and referencing. Ability to apply some management accounting decision making techniques. Demonstrates an adequate understanding of the principles and techniques involved. Reasonable attempt at analysis and discussion of findings, though of limited depth. A good application of management accounting for decision making. Demonstrates agood understanding of the principles and techniques involved. Good analysis and discussion of findings, with good use of academic references which support clear and well explained conclusions. Excellent application and understanding of management accounting for decision making. Thorough and detailed critical discussion with excellent use of arange of academic references which support clear, practical, and well explained recommendations and conclusions. Page 4of 10 Question 1 The scenario Unity Holdings Plc has aportfolio of investments in subsidiary companies and is seeking another acquisition that complements the others. The subsidiary companies already in the group include: machinery and commercial vehicle dealership; finance company; equipment leasing company; haulage company with afleet of 150 heavy goods vehicles (HGV), and achain of value hotels across the UK, one of which is making a loss. Two possible acquisition targets have been identified: VANTAGE Ltd is based in leased converted hotels and provides care services for young people unable to be cared for in the foster system. Unity Holdings Plc are looking into the possibility of converting their failing hotel into aprovider of care services and VANTAGE is looking for another property to continue expanding around the UK; DUNHOP Ltd has alarge yard and caters for the storage and repair of up to 50 commercial vehicles at one time, and has the potential for more space as itis based in alarge empty industrial area. DUNHOP is looking for acontract with afleet operator to stabilise their income and growth. Extracts from the financial statements of both target companies are shown below: Page 5of 10 Page 6of 10 The ratio analysis below is in 4 categories (Profitability, Management Efficiency, Liquidity and Gearing), and needs completing: Page 7of 10 Requirements 1.1 Prepare abusiness report, maximum 2pages lon g(approximately 400 words) with an appendix for your ratio analysis. Itis to be addressed to the board of directors of Unity Holdings Plc. You must evaluate the financial statements, interpret the ratio analysis and make aconvincing argument for investment in one of the two target companies. Your report should be supported with academic references throughout, and your ratio analysis should be put in an appendix to the report. (400 words, 30 marks) 1.2 Critically evaluate the working capital management (WCM) of both companies using academic references and draw conclusions on which is stronger. (200 words, 5marks) 1.3 Create atable that lists the advantages and disadvantages of all the finance options available to Unity Holdings Plc. Explain, with references, the source of finance you recommend as most suitable way to finance the investment in either VANTAGE Ltd or DUNHOP Ltd. (200 words, 5marks) Question 1total 800 words, 40 marks Marking guide Carefully examine the marking guide below to ensure that you structure your answer to include every element: Mark allocation RATIO CALCs INTERPRETATION OTHER TOTAL Q1.1 Profitability 4 3 7 Management efficiency 4 3 7 Liquidity 2 3 5 Gearing 2 3 5 Conclusion & recommendation 2 2 Credible academic citations 2 2 Layout, structure and grammar 2 2 Q1.2 Working Capital Management 5 5 Q1.3 Sources of finance 5 5 Total 12 12 16 40 Page 8of 10 Question 2 The company manufactures three products code named: Alpha, Beta and Gamma. The maximum market demand and resource requirements of each of these products are shown below: The company's products are unique, exclusively made from arecently patented advanced material that can only be sourced from one supplier. The purchasing manager has informed you that the maximum supply of this special material is limited to 65,000kg. There is no stock held in reserve because itimmediately uses all of the material exclusively supplied by the patent holder. Without sanction from the board, the sales director has accepted an order for 50,000 Gamma that, if not fulfilled, would incur afinancial penalty of £25,000. This order is included in the maximum market demand figure. The directors need to know whether they should go ahead and satisfy the contract and then prioritise production in the normal way or whether itshould consider breaching the contract and incurring the penalty. Page 9of 10 Question 2 Required: 2.1. Prepare amarginal cost card showing selling price, variable costs, and contribution per unit for each product. (3 marks) 2.2. Calculate the break-even point (BEP) for each product (3 marks) 2.2.1. Using your calculations of the Break Even Point (BEP) for each product create aCVP chart that shows the BEP graphically. (3 marks) 2.2.2. Using your calculations and graphs of the BEP for each product comment on the Director's concern about the level of demand and operational gearing levels for each product. (2 marks) 2.2.3. The fixed overheads are apportioned based on the floor space used by each relevant product team, do you have any suggestions that will reduce operational gearing and improve profitability? (2 marks) 2.2.4. Why is itimportant to tightly control overheads and work to keep operational gearing as low as possible? (3 marks) 2.3. Calculate the contribution per kg of scarce resource and give a ranking to each product (the first has the highest contribution per kg). (3 marks) 2.4. Prepare a budgeted production schedule and a marginal cost income statement (analysed by product) for 2021 assuming that the Gamma contract is honoured. (5 marks) 2.5. Prepare budgeted production schedule and a marginal cost income statement (analysed by product) for 2021 assuming that the Gamma contract is not honoured. (5 marks) 2.6. Advise the company, with brief justification, whether to honour the Gamma contract or not based on your analysis. (1 mark) Question 2 total 600 words/equivalent, 30 marks Page 10 of 10 Question 3 As aUnity Holdings Plc junior manager, you have been asked for your annotated calculations and recommendation regarding adecision whether to lease or buy new premises. The option to buy The costs of buying include £1,950,000 for the freehold land, building costs of £2,612,500, and £268,100 for fittings and equipment. At the end of the fifth year the property is expected to be worth £4m. The option to lease The building to be leased requires refurbishment that will cost £500,000 and fixtures and fittings will cost £283,000. The terms of the 5year lease are £50,000 per month. Comply with company policies Any decision should be based on the results of calculating Net Present Value (NPV) of 5years of cash flows using acost of capital of 10%, Payback Period (PBP) must be less than 3years, and the Internal Rate of Return (IRR) of the project should provide asignificant cushion in case of increases in inflation or interest rates that the directors are concerned are unpredictable. The cash flows Both options will use the same cash flows. Year 1sales revenue is expected to be £7,150,000; the cost of core products are £2,370,000; ancillary stock purchases £1,250,860; staff costs £1,138,020; light & heat £368,720; other overheads £604,240. The cash flows for years 2to 5are the same, but are expected to increase by 2% inflation each year. Requirements for Question 3 Using the information above and in accord with the above stated company policy you are required to calculate the following for both options: i. Net Present Value (NPV) Property lease option 5marks Property purchase option 5marks ii. Payback period (PBP) and Discounted Payback Period (DPBP) 8marks iii. Internal Rate of Return 2marks iv. Based on your calculations for each of the above state which option you recommend? 5marks v. Critically discuss the limitations of the above project appraisal techniques. 5marks Question 3total 600 words/equivalent, 30 marks COURSEWORK TOTAL MARKS: 100 END