7ACCN018W Financial Analysis for Managers

December 8, 2021 admin 0 Comments

End of Module Authentic Assessment

Module Title: Financial Analysis for Managers

Module Code: 7ACCN018W

Module Status: Core

Assessment Weighting: 60%

In ModuleAssessment: Authentic Assessment

Submission Date: 21December 2021

Provisional Marks and Feedback Date: 21stJanuary 2022

Where to Access the Feedback: Module Blackboard Site

Feedback Method: Mixture of Formative and Summative Assessment Feedback. Students receive comments on their ability to link theory into practice in terms of applying and interpreting “financial ratio analysis” to selected companies.

Assignment Outline:

This ‘Authentic Assignment’ contributes to 60% of the overall mark for the module. The assignment will be undertaken on an individual basis.

The word limit excluding calculations is 10 words for every 1 mark of discursive answer (+/- 10%). For example, for a 10-mark discussion question, the word limit is 300 words +/- 10%. Ignoring the word limit will incur a mark reduction.

All your Excel calculations/sheets should be copied and pasted into one single MS Word or pdf document containing your answers to the discussion requirements.

In answering the questions in this assessment, please start your answer to each requirement on a new page (a new page for requirement (a), a new page for requirement (b), etc)

Scenario

BartSkinner is contemplating setting up an energy drinks manufacturing businessfrom 1^st January 2022 partly financing it with the £450,000 he inherited from his late father who passed away few months earlier. Hehas already spoken to a bank who has agreed to provide an overdraft facility of up to £100,000.

Lisa, Bart’s sister who also inherited £420,000 will be part of this business by investing all her inheritance money either in partnership with Bart or as a shareholder/director in the company should Bart decide to form a company. Bartis unsure as to whether the business should be in the form of a partnership or a limited company.

Last month Bart commissioned a research and marketing firm to carry out a market research whose findings indicated that the business will have a good chance of success. The market research company has provided Bart with the followinginformation:

Annual demand in the first year is likely to be:

1,600,000 cans with a probability of 25%
1. 1,860,000 cans with a probability of 60%
1. 2,020,000 cans with a probability of 15%

The demand in each year will be seasonal. 20% of annual sales will be in the first quarter, 25% in the second quarter, 40% in the third quarter and 15% in the final quarter of the year. (you may assume that in each quarter,sales per month stays the same)

In the following four years, demand is expected to increase by 17.5% in year 2, 13% in year 3, 9.5% in year 4 and 4.2% in year 5. The research company is unable to forecast sales beyond year 5.

Selling price in the first year will be set at £1.05 per canof drink, increasing by 2.5% per year in each of the following 4 years.

Sales will be to retailers and on credit. It is expected that 65% of customers pay after 1 month and the rest will pay after two months.

Variable costs of producing one can of drink areestimated at£0.69 in the first year. These costs will increase by an average of 3.2% per year in each of the following 4 years. Purchases of raw material (variable costs) will be made monthly sufficient to cover the production for that month, and are paid for in the following month.

Fixed costs of operation including staff salaries are estimated at £196,620 in the first year increasing by 1.9% per year in each of the following four years. Fixed costs occur evenly throughout the year and are paid for on a monthly basis.

Suitable factory premises will be rented at £72,000 per year with the rent payable quarterly in advance. The rent is expected to increase by 5% per year in each of the following 4 years.

Factory equipment will cost £526,000 payable immediately. An upgrade to the equipment will be needed in year 3 costing £172,000. These equipment will need to be replaced with more modern equipment after 5 years, The scrap value of equipment at the end of the fifth year is expected to be only £34,000.

The business will need £88,000 of working capital. You may assume this will be needed at the start of business. You may assume that the investment in working capital will be recovered in full at the end of year 5.

Required: (Please start your answer to each requirement on a separate page)

Discuss the advantages and disadvantages of setting up the business as a partnership or a private limited company.

(10 marks)

(Word limit 300 words +/- 10%)

Produce a cash budget for the first year of the business. Suggest how, in general, cash shortages in any month can be dealt with.

(20 marks)

Discuss the reasons why organisations need to budget, and the difficulties that start-up businesses face when attempting to draw up budgets.

(10 marks)

(Word limit 300 words +/- 10%)

Calculate the following for the first year of the business:

Budgeted profit for the year
1. BEP
1. Margin of safety
1. What should the selling price per can of drink be at the budgeted level of productionfor the business to generate £500,000 of profit?

(15 marks)

Assuming this is a five-year project and ignoring all taxation implications, calculate the following: (Discount rate at 8%)

The payback period
1. The accounting rate of return
1. The net present value

(30 marks)

Discuss the advantages and limitations of each of the project appraisal methods listed in requirement (e) above.

(15 marks)

(Word limit 450 words +/- 10%)

(Total: 100 marks)

The following criteria will be used in assessing this coursework:

The marks awarded for each part of this assignment will be based on:

The assignment must go through ‘Turnitin’ and submitted electronically no later than 13.00on Wednesday 21December 2021.

The rules on late submission and plagiarism are applied and fully enforced by the School.

Submission of Coursework

Unless explicitly stated otherwise in writing by the module leader, the coursework on this module must only be submitted via Blackboard. It will automatically be scanned through a text matching system designed to check for possible plagiarism. Please DO NOT submit more than once since any subsequent submission after the first submission will show a near 100% match causing plagiarism alert!

To submit your assignment:

Log on to Blackboard at http://learning.westminster.ac.uk;
Go to the relevant module Blackboard site;
Click on the Assessment tab
Click on the ‘Submit Authentic Assessment’ link
Follow the instructions.