Subject Code & Title :- 7025AFE Global Business
Assessment Type :- Assignment
Assignment Title :- Case Study – Individual report
Assignment Weighting :- 10 Credits
Word Count :- 2,500
7025AFE Global Business Assignment – UK
Learning Outcomes Assessed by this Assignment: ML02 – ML05
ML02:
Evaluate management accounting decision making techniques and apply them in relevant internal and external situations.
ML03: Synthesise diverse forms of economic information from both the environment and the organisation to evaluate and propose solutions to business problems.
ML04: Critically appraise the need for financial information and adaption of techniques to aid management decision making in contemporary business environment.
ML05: Discuss critically the criteria used to evaluate investments or capital projects and how firms source funding for the same.
Assignment Detail:
CASE STUDY: Cranes Limited
Cranes limited is a UK subsidiary of the Kenyan RCT Group. The company has been operating it the UK for the past 9 years. CRANES provides financial services to a number of organisations which include SME’s property developers and investment property funds in the UK and Kenya. For the past 10 years, CRANES has been a profit-making firm as it has retained its previous clients in addition to capturing an increasing share of the market. However, the finance director of CRANES has recently got in touch with your professional consulting firm and has engaged your firm with the mandate to provide them with an explanation of the cash flow problem that CRANES Limited had been facing. The company is also dependent on the parent based in Kenya for funds as and when required.
In the past month there has been a number of meetings in London and Kenya where it has been agreed that CRANES Limited should do their best to expand the business and raise the required capital in the UK, or perhaps in Europe, so as not to depend so much on cash coming from the parent company all the time. Consequently the management of CRANES is considering the following projects:
The current product that CRANES Limited has to offer mostly to specialist developers & investment funds companies is outdated.
The company is looking to invest in a new product and there are two proposals on offer. The details of these two proposals are outlined below.
All of the above estimates have been prepared in terms of present-day cost and prices. Assume that cash flows arise at the end of each period. In addition
All of the above estimates have been prepared in terms of present-day cost and prices. Assume that cash flows arise at the end of each period. In addition
• Revenues are expected to rise by 4% in price terms per year from year 1 (start of year 2).
• Overheads are expected to rise by 4% per year from year 1 (start of year 1)
• The cost of Module M1 and Module M2 are expected to rise in line with inflation of 5% per year from the beginning of year 1.
• The cost of Developing Engineers who have come from the Kenya have not been taken into consideration in the forecast and are as follows:
Developing Engineer 1 (ED1): Will be paid £120 per hour and expected number of hours for ED1 are 1400hrs. The rate paid is expected to rise in line with inflation at 5% per year from year 2 and the number of hours is expected to reduce by 4% per year every year from year 2 onwards.
Developing Engineer 2 (ED2): Will be paid £110 per hour and expected number of hours for ED2 are 1,200hrs. The rate paid is expected to go up in line with inflation at 5% per year from year 2 and the number of hours is expected to reduce by 4% per year, every year from year 2 onwards.
If CRANES Limited invests in High-End Suite, then the discount rate that would be required to assess the NPV would be 9%. The table above shows the estimated outgoings and inflows for the project.
Basic Suite
Basic Suite is the second of two proposals, the expected life of this software will also be 5 years and the cost of the new software, expected revenue, Modules costs and overheads are as follows:
costs of Developing Engineers inflation and the rise in the revenue and over heads consideration which are the same for the High-End Suite. The discount will also be the same as with Basic Suite.
If CRANES Limited invests in Basic Suite then the discount rate that would be required to assess the NPV would be 9%.
7025AFE Global Business Assignment – UK
Customer Centre :-
The manager in charge of sales has just informed your company that they plan to open a centre in the Southeast and it is hoped that this centre will be opened for business on 1 November 2022. You have also been informed that to start with, the company will only sell 2 software packages that of General Package (GP) and the Tailored Package (TP). This will be done to test the market and see if the business will break-even in the same period. These two popular packages will be offered at £320 for GP and £420 for TP.
The company has provided you with the following information regarding the costs and estimated sales for the three-month period, starting from 1 November.
CRANES Limited plan to put in £5800 as start-up capital and plan to sell a total of 1260 combined of GP and TP for the same period. They are not sure which of the two products will produce the most profits for CRANES.
Total budgeted sales for each month are as follows: November 420, December 420 and January 420, of which a third of each month will be for TP. You will be required to assess the best product combination of sales for the period.
To help with the setup of the store, the company has just concluded a deal to get a bank loan of £25,000 on the 1 November. The interest on this loan will be paid every month. The company will be required to make 12 equal payments to repay the loan starting end of December.
Financial information
As mentioned above the company plans to sell a total of 1260 product packages during these three months. The fixed costs for the period are as below:
Rent £ 12,000
Telephone £ 2,400
Loan Interest £ 960
Insurance £ 5,400
Electricity and Gas £ 3,900
Business Rates £ 3,300
Fixed cost specific to
products GP TP
Marketing £ 24,000 £ 27,300
Administration £ 8,100 £ 12,600
Staff Salary £ 21,000 £ 22,200
From their costs estimates the variable costs of the services are £150 for the GP and £220 for the TP. The fixed costs are for the whole period, so they are not affected by the level of service.
However the variable costs will increase with services output (ie sales output multiplied with variable cost per product).
Revenue from the sale of GP and TP will be on the basis of 45% cash in the same month, and the remaining 55% credit to be paid the following month.
Requirement:
You are required to write a management report to the management of CRANES limited directors demonstrating the scope of financial function in the organisation, discussing the following points:
7025AFE Global Business Assignment – UK
• Provide an explanation on the different sources of funding the company can have & their advantages and disadvantages. You should make recommendations as to how the Company can manage the same to help in the planned expansion program.
• Analyse the Investment proposals by using NPV and provide recommendations. You should also briefly comment on other investment proposal techniques that CRANES Limited may use and the limitations of using those techniques
• The use of management tools such as Breakeven analysis and Budgets.
• A computation of your breakeven analysis and the cash budget for the first 3 months.
• An evaluation of the estimated company performance or position during the same period
• A detailed Literature Review of the tools you have used such as breakeven analysis and budgets and their importance to business.
• Other issues for management to consider that you think are vital for them to survive & make a profit.
Assignment Guidelines:
The rubric by which your report will be assessed is posted separately. It is important that prior to you submitting your work you read this and objectively assess your response against the rubric. This will ensure that you have done enough to attain the marks you wish to achieve.
Layout
Your work should be word processed in accordance with the following:
• Font style Arial font size 12
• 1.5 line spacing.
• The page orientation should be ‘portrait’
• Margins on both sides of the page should be no less than 2.5 cm
• Pages should be numbered
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