FIN7001 Financial Management

As part of the formal assessment for the programme you are required to submit a Business plan, for the module assessment, FINANCIAL MANAGEMENT.   

Learning Outcomes:

1. Understand and evaluate the uses of both quantitative and qualitative accounting information, within an organisation.  

2. Apply theoretical concepts and framework to a range of practical situations in order to propose solutions to strategic business problems.   

3. Apply and critique key management accounting techniques.  

4. Demonstrate critical thinking and analysis in showing how the finance function can contribute to the successful strategic management of an organisation.  

5. Recognise the skills required to communicate effectively at senior level and be able to put these skills into practice.  

6. Use financial information to improve an organisation’s strategic performance.

7. Discipline expertise: Develop the skills required to independently access and process financial data.  

Maximum word count for the module: 5000  

Please note that exceeding the word count by over 10% will result in a reduction in grade by the same percentage that the word count is exceeded

QUESTION 1

Gelco Ltd is a private company seeking to expand. You are the Managing Director and currently considering two projects, with the following projected Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA). Any profit/loss on the disposal of the items is included in the respective final year EBITDAs for each project.

The current investment climate is riddled with uncertainty and as the MD; you want to have some form of assurance before implementing any project that meets the specific criteria that are being considered.   

Additional Information:  

• Depreciation for Project A machine shall be 20% on cost with a scrap value of £5,000 whilst that of Project B shall be 20% on reducing balance, with no scrap value.

 • The costs of capital shall be 10% for each of the projects.  

• The allowable timeframe to re-coup capital is 3 years.

Required:  

Using a number of suitable techniques, determine the following:  

a) Calculate the Pay-back period and critically evaluate its suitability as a sole-criterion for decision-making relevant to Investment appraisal decisions.

b) Examine the Accounting Rate of Return and consider the implications of assessing projects following this methodology.

c) Discuss the advantages of using discounting techniques and calculate the Net Present Value of both investment alternative.

d) Determine the Profitability Index, if the Managing Director has an allowable Capital expenditure budget of £100,000 assuming the investment alternatives are not mutually exclusive and could be implemented in tiered stages.

QUESTION 2

Telco Private Limited is currently reviewing its management accounts for its sole product, which has been very successful. You are undertaking the review with a view to building an understanding of the variances.  

The following are the historical budgeted cost of the product:

With service department annual fixed servicing costs of £62,000 Below are the quantities which are budgeting and actual sold

Required;   

a) Discuss the relevance of Variance analysis and calculate the Budgeted sales variance from 2014 to 2017.

b) Assume for this question the year is 2019, and the competition has pegged the price of their product at £14. What strategies could Telco Private Ltd implement to save their market leadership?  

c) Determine the historical Break-Even Point (Units) for the years and calculate the Margin of safety for 2017.  

d) Using Absorption costing, determine the historical production costs per unit per annum, for 2017.