Managing Financial Resources And Decisions
This document was uploaded by user and they confirmed that they have the permission to share it. If you are author or own the copyright of this book, please report to us by using this DMCA report form. Report DMCA
Overview
Download & View Managing Financial Resources And Decisions as PDF for free.
More details
- Words: 1,645
- Pages: 8
Managing Financial Resources and Decisions December 2009
Date of submission 15th
ASSIGNMENT GUIDELINES 1. During your Structured Individual Study (SIS), you are required to answer each UNIT
Managing financial resources and decisions
LECTURER
SHYAM KUMAR SHARMA
VERIFIER
HAND OUT DATE
26th October 2009
SUBMISSION DATE
15th December 2009
TERM
September 2009
STUDENT
Course
HND in Business
question (Outcomes Assessment Criteria) which has been covered separately in respective Lessons; 2. In your answer, write about the key concepts highlighted by the Lesson (underpinning knowledge); 3. Look for real-life examples to apply your key concepts (applied knowledge); 4. Make use of the SIS time to research books; 5. During your SIS time, use the computer to research recommended websites and word process your Assignment; It is important that the work you produce is carefully planned & written. Your work should demonstrate; (a) Your understanding of the theory you have learned (underpinning knowledge) and (b) Your ability to apply it to real life/contemporary situations/case study (applied knowledge). Please follow the instructions below: 1. Start each answer from a new page; 2. Highlight each question clearly; 3. Avoid bullet points and restrict the use of numberings; remember that you are supposed to write an essay; 4. All work should be comprehensively referenced and all sources must be acknowledged fully, this includes books & journals used as well websites visited. Details such as page numbers, publishers and publication year should also be stated, in addition to the name of the author(s) and publication. Books, articles and journals should be the main sources; net sources are allowed up to 25% max; 5. Follow Harvard Referencing system; 6. All work should be word-processed; 7. Pages should be numbered (bottom right hand corner); 8. Assignment sheet should be attached in the front; 9. Spell checks the document and read thoroughly for grammatical errors; 10. 1.5-line spacing is preferred; 11. Bibliography at the end of the assignment; The correct format to answer each question (Task) is as follows: 1. Introduction (analyze the question – which theory is it trying to ask you to demonstrate?)
Managing Financial Resources and Decisions December 2009
Date of submission 15th
2. Underpinning Knowledge (write about the relevant theory/points) 3. Applied Knowledge (apply the theory/points you have written about in your underpinning knowledge to your case study/real life example) 4. Conclusion (summarize what you have written in 2 & 3 above). ASSIGNMENT REGULATIONS Please refer to the HND Business student handbook given at the beginning of your programme.
1. Alpha plc is planning to build production facilities to introduce a major new product at a
cost of $ 12 million. The board of directors has already approved the project on the basis that it will yield a positive NPV when discounted, over a ten year period, at the company’s market weighted average cost of capital. The investment is expected to increase profit before interest and tax by approximately 25%. No internally-generated funds are available. The finance director has suggested three possible sources of finance. 1. A five year $ 12 million floating rate term loan from a clearing bank, at an initial interest
rate of 10%. 2. A ten-year € 16 million fixed-rate loan from the Euro-currency market at an interest rate of 7%. 3. A right issue at a discount of 10% on the current market price. The company’s share price is 170 cents. The current summarized financial statements are shown below. Summarized balance sheet as at 31st December 20X1 $000 Non-current assets at NBV 38,857 Current assets Current liabilities
$000
18,286 (16,914) ------------
Net current assets 1,372 --------40,219 ---------Financed by Share capital: Ordinary shares of 25 cents each 7,200
Managing Financial Resources and Decisions December 2009
Date of submission 15th
Reserves 19,813 Loan capital: 11% loan notes 20X4/20X7 13,166 --------40,219 ---------
Summarized income statement for the year ended 31st December 20X1 $000 57,922 --------7,744 1,448 --------6,296 3,148 ---------
Turnover Profit before interest and taxation Debenture interest Taxation Profit available for ordinary shareholders 3,148 Ordinary dividend Retained profits
2.250 -------898 ---------
Corporation tax is at 50% Exchange rates (€ 1=….) $ Spot rate 1 year forward
1.2010-1.2028 1.2760-1.2785
Acting as a consultant to Alpha plc, prepare a report which: Discuss the advantage and disadvantages of each of the three suggested sources of finance illustrating how the utilization of each source might affect the various providers of finance. (Relevant calculations are an essential part of your report.) Suggest other sources of finance that might be suitable for this investment. Compare the cost of different sources of finance and what’s the importance of financial planning in decision making? 1. Purple Co is considering a potential project with the following forecasts:
Managing Financial Resources and Decisions December 2009
Now (1000)
Initial investment ($ millions)
T1
Date of submission 15th
T2
Disposable proceeds ($millions)
T3 200
Demand (millions of units)
5
10
6
The initial investment will be made on the first day of the new accounting period. The selling price per unit is expected to be $100 and the variable cost $30 per unit. Both of these figures are given in today’s terms. Tax is paid at 30%, one year after the accounting period concerned. The company has a real required rate of return of 6.8%. General inflation is predicted to be 3% pa but the selling price is expected to inflate at 4% and variable costs by 5% pa. Determine the NPV of the project. (Work in $ millions). Explain the importance of budget in pricing decision making. 2. Study the following financial statements for two very similar privately owned department stores which comprise of one store in the city centre of a major UK city and then answer the questions which follow. Summary of financial statements Balance sheets A B £000s £000s £000s £000s Fixed assets Building at cost 300 440 Less depreciation to date (255) (220) 45 220 Equipment at cost 140 180 Less dep. to date (119) (90) 21 90 --------66 310
Current assets Stock Debtors Bank Less current liabilities Creditors
200 205 4 ------409
240 140 2 ------382
(245)
(252) 164 ------230 ------_________
Financed by: Capital accounts
130 ------440 -------________
Managing Financial Resources and Decisions December 2009
Balance at start of year Add net profit Less drawing
Trading and profit and loss accounts Sales Less cost of goods sold Opening stock 300 Add purchases 1300 ------1600 Less closing stock (200)
Date of submission 15th
240 60 ------300 (70) ------230 -------_______
430 90 ------520 (80) ------440 -------______
1800
2700 280 2250 -------2530 (240)
(1400) --------Gross profit Less depreciation Other expenses
--------Net profit
(2290) --------
400 22 318 ------
410 40 280 -------
(340) ----------
(320)
60 ---------
90
--------__________ ________ (a) Calculate the following ratios: i. Gross profit as percentage of sales ii. Net profit as percentage of sales iii. Expenses as percentage of sales iv. Stock turn v. Rate of return of net profit on capital employed ( use the average of the capital account for this purpose) vi. Current ratio vii. Acid test ratio viii.Debtor: sales ratio ix. Creditor : purchases ratio (a) Drawing upon all your knowledge of accounting, comment upon the differences and similarities of the accounting ratios for A and B. which business seems to be most efficient? Justify your opinion. (b) Explain the purpose of main financial statements and how does it differ for different business organization?
Managing Financial Resources and Decisions December 2009
Date of submission 15th
1. The directors of Axis Ltd. are currently considering two mutually exclusive investment
projects. Both projects are concerned with the purchase of new plant. The following data are available for each project: Project 1 Project 2 £ £ Cost (immediate outlay) 100,000 60,000 Expected annual net profit (loss): Year 1 29,000 18,000 Year 2 (1000) (2000) Year 3 2,000 4,000 Estimated residual value 7,000 6,000 The business has an estimated cost of capital of 10% and employs the straight line method of depreciation for all fixed assets when calculating net profit. Neither project would increase the working capital of the business. The business has sufficient funds to meet all capital expenditure requirements. Required: (a) Calculate for each project: i. The net present value ii. The approximate internal rate of return iii. The payback period. (a) State which, if any, of the two investment projects the directors of Axis Ltd. should accept, and why? (b) State, in general terms, which method of investment appraisal you consider to be most appropriate for evaluating investment projects and why?
Managing Financial Resources and Decisions December 2009
Date of submission 15th
Outcomes and assessment criteria for managing financial resources and decisions Outcomes
Assessment criteria for pass To achieve each outcome a learner must demonstrate the ability to:
1 Explore the • identify the sources of finance available sources of to a finance available business to a business
Syllabus covered
Q 1 Covers all these requireme nts
• assess the implications of the different sources • select appropriate sources of finance for a business Project
2 Analyze the implications of
• assess and compare the costs of different sources of finance
finance as a resource within a business
• explain the importance of financial planning • describe the information needs of different decision
Q 1 Covers all these requireme nts
Managing Financial Resources and Decisions December 2009
Date of submission 15th
3 Make financial decisions
• analyze budgets and make appropriate decisions
based on financial
• calculate unit costs and make pricing decisions using relevant information
information
• assess the viability of a project using investment appraisal techniques
4 Analyze and evaluate the
• explain the purpose of the main financial statements
financial performance of a
• describe the differences between the formats of financial statements for different types of business
business
• analyze financial statements using appropriate ratios and comparisons, both internal and external
Q2&Q4 Covers all these requireme nts
Q 3 Covers all these requireme nts
Date of submission 15th
ASSIGNMENT GUIDELINES 1. During your Structured Individual Study (SIS), you are required to answer each UNIT
Managing financial resources and decisions
LECTURER
SHYAM KUMAR SHARMA
VERIFIER
HAND OUT DATE
26th October 2009
SUBMISSION DATE
15th December 2009
TERM
September 2009
STUDENT
Course
HND in Business
question (Outcomes Assessment Criteria) which has been covered separately in respective Lessons; 2. In your answer, write about the key concepts highlighted by the Lesson (underpinning knowledge); 3. Look for real-life examples to apply your key concepts (applied knowledge); 4. Make use of the SIS time to research books; 5. During your SIS time, use the computer to research recommended websites and word process your Assignment; It is important that the work you produce is carefully planned & written. Your work should demonstrate; (a) Your understanding of the theory you have learned (underpinning knowledge) and (b) Your ability to apply it to real life/contemporary situations/case study (applied knowledge). Please follow the instructions below: 1. Start each answer from a new page; 2. Highlight each question clearly; 3. Avoid bullet points and restrict the use of numberings; remember that you are supposed to write an essay; 4. All work should be comprehensively referenced and all sources must be acknowledged fully, this includes books & journals used as well websites visited. Details such as page numbers, publishers and publication year should also be stated, in addition to the name of the author(s) and publication. Books, articles and journals should be the main sources; net sources are allowed up to 25% max; 5. Follow Harvard Referencing system; 6. All work should be word-processed; 7. Pages should be numbered (bottom right hand corner); 8. Assignment sheet should be attached in the front; 9. Spell checks the document and read thoroughly for grammatical errors; 10. 1.5-line spacing is preferred; 11. Bibliography at the end of the assignment; The correct format to answer each question (Task) is as follows: 1. Introduction (analyze the question – which theory is it trying to ask you to demonstrate?)
Managing Financial Resources and Decisions December 2009
Date of submission 15th
2. Underpinning Knowledge (write about the relevant theory/points) 3. Applied Knowledge (apply the theory/points you have written about in your underpinning knowledge to your case study/real life example) 4. Conclusion (summarize what you have written in 2 & 3 above). ASSIGNMENT REGULATIONS Please refer to the HND Business student handbook given at the beginning of your programme.
1. Alpha plc is planning to build production facilities to introduce a major new product at a
cost of $ 12 million. The board of directors has already approved the project on the basis that it will yield a positive NPV when discounted, over a ten year period, at the company’s market weighted average cost of capital. The investment is expected to increase profit before interest and tax by approximately 25%. No internally-generated funds are available. The finance director has suggested three possible sources of finance. 1. A five year $ 12 million floating rate term loan from a clearing bank, at an initial interest
rate of 10%. 2. A ten-year € 16 million fixed-rate loan from the Euro-currency market at an interest rate of 7%. 3. A right issue at a discount of 10% on the current market price. The company’s share price is 170 cents. The current summarized financial statements are shown below. Summarized balance sheet as at 31st December 20X1 $000 Non-current assets at NBV 38,857 Current assets Current liabilities
$000
18,286 (16,914) ------------
Net current assets 1,372 --------40,219 ---------Financed by Share capital: Ordinary shares of 25 cents each 7,200
Managing Financial Resources and Decisions December 2009
Date of submission 15th
Reserves 19,813 Loan capital: 11% loan notes 20X4/20X7 13,166 --------40,219 ---------
Summarized income statement for the year ended 31st December 20X1 $000 57,922 --------7,744 1,448 --------6,296 3,148 ---------
Turnover Profit before interest and taxation Debenture interest Taxation Profit available for ordinary shareholders 3,148 Ordinary dividend Retained profits
2.250 -------898 ---------
Corporation tax is at 50% Exchange rates (€ 1=….) $ Spot rate 1 year forward
1.2010-1.2028 1.2760-1.2785
Acting as a consultant to Alpha plc, prepare a report which: Discuss the advantage and disadvantages of each of the three suggested sources of finance illustrating how the utilization of each source might affect the various providers of finance. (Relevant calculations are an essential part of your report.) Suggest other sources of finance that might be suitable for this investment. Compare the cost of different sources of finance and what’s the importance of financial planning in decision making? 1. Purple Co is considering a potential project with the following forecasts:
Managing Financial Resources and Decisions December 2009
Now (1000)
Initial investment ($ millions)
T1
Date of submission 15th
T2
Disposable proceeds ($millions)
T3 200
Demand (millions of units)
5
10
6
The initial investment will be made on the first day of the new accounting period. The selling price per unit is expected to be $100 and the variable cost $30 per unit. Both of these figures are given in today’s terms. Tax is paid at 30%, one year after the accounting period concerned. The company has a real required rate of return of 6.8%. General inflation is predicted to be 3% pa but the selling price is expected to inflate at 4% and variable costs by 5% pa. Determine the NPV of the project. (Work in $ millions). Explain the importance of budget in pricing decision making. 2. Study the following financial statements for two very similar privately owned department stores which comprise of one store in the city centre of a major UK city and then answer the questions which follow. Summary of financial statements Balance sheets A B £000s £000s £000s £000s Fixed assets Building at cost 300 440 Less depreciation to date (255) (220) 45 220 Equipment at cost 140 180 Less dep. to date (119) (90) 21 90 --------66 310
Current assets Stock Debtors Bank Less current liabilities Creditors
200 205 4 ------409
240 140 2 ------382
(245)
(252) 164 ------230 ------_________
Financed by: Capital accounts
130 ------440 -------________
Managing Financial Resources and Decisions December 2009
Balance at start of year Add net profit Less drawing
Trading and profit and loss accounts Sales Less cost of goods sold Opening stock 300 Add purchases 1300 ------1600 Less closing stock (200)
Date of submission 15th
240 60 ------300 (70) ------230 -------_______
430 90 ------520 (80) ------440 -------______
1800
2700 280 2250 -------2530 (240)
(1400) --------Gross profit Less depreciation Other expenses
--------Net profit
(2290) --------
400 22 318 ------
410 40 280 -------
(340) ----------
(320)
60 ---------
90
--------__________ ________ (a) Calculate the following ratios: i. Gross profit as percentage of sales ii. Net profit as percentage of sales iii. Expenses as percentage of sales iv. Stock turn v. Rate of return of net profit on capital employed ( use the average of the capital account for this purpose) vi. Current ratio vii. Acid test ratio viii.Debtor: sales ratio ix. Creditor : purchases ratio (a) Drawing upon all your knowledge of accounting, comment upon the differences and similarities of the accounting ratios for A and B. which business seems to be most efficient? Justify your opinion. (b) Explain the purpose of main financial statements and how does it differ for different business organization?
Managing Financial Resources and Decisions December 2009
Date of submission 15th
1. The directors of Axis Ltd. are currently considering two mutually exclusive investment
projects. Both projects are concerned with the purchase of new plant. The following data are available for each project: Project 1 Project 2 £ £ Cost (immediate outlay) 100,000 60,000 Expected annual net profit (loss): Year 1 29,000 18,000 Year 2 (1000) (2000) Year 3 2,000 4,000 Estimated residual value 7,000 6,000 The business has an estimated cost of capital of 10% and employs the straight line method of depreciation for all fixed assets when calculating net profit. Neither project would increase the working capital of the business. The business has sufficient funds to meet all capital expenditure requirements. Required: (a) Calculate for each project: i. The net present value ii. The approximate internal rate of return iii. The payback period. (a) State which, if any, of the two investment projects the directors of Axis Ltd. should accept, and why? (b) State, in general terms, which method of investment appraisal you consider to be most appropriate for evaluating investment projects and why?
Managing Financial Resources and Decisions December 2009
Date of submission 15th
Outcomes and assessment criteria for managing financial resources and decisions Outcomes
Assessment criteria for pass To achieve each outcome a learner must demonstrate the ability to:
1 Explore the • identify the sources of finance available sources of to a finance available business to a business
Syllabus covered
Q 1 Covers all these requireme nts
• assess the implications of the different sources • select appropriate sources of finance for a business Project
2 Analyze the implications of
• assess and compare the costs of different sources of finance
finance as a resource within a business
• explain the importance of financial planning • describe the information needs of different decision
Q 1 Covers all these requireme nts
Managing Financial Resources and Decisions December 2009
Date of submission 15th
3 Make financial decisions
• analyze budgets and make appropriate decisions
based on financial
• calculate unit costs and make pricing decisions using relevant information
information
• assess the viability of a project using investment appraisal techniques
4 Analyze and evaluate the
• explain the purpose of the main financial statements
financial performance of a
• describe the differences between the formats of financial statements for different types of business
business
• analyze financial statements using appropriate ratios and comparisons, both internal and external
Q2&Q4 Covers all these requireme nts
Q 3 Covers all these requireme nts
Related Documents
Managing Financial Resources And Decisions
June 2020 3
Managing Human Resources And Diversity
June 2020 10
Managing Personal Resources
June 2020 4