Subject Code & Title: ACC7032 Managerial Finance
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.
• 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.
ACC7032 Managerial Finance Assessment – Birmingham City University UK.

General guidance :
The assessment for this unit is one coursework assignment. The required mark has been set at 50%. If you are attempting a first 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 being imposed. This is an individual assignment and all calculations, analysis and narrative submitted must be your own work.

The assignment will require a considerable 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 2 decimal 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 spread sheets 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 a formal marking scheme.

Question 1:
The scenario
Mars Holdings Plc has a portfolio 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 a fleet of 200 heavy goods vehicles (HGV), and a chain of value hotels across the UK, one of which is making a loss.

Two possible acquisition targets have been identified:

Wyre Child Ltd is based in leased converted hotels and provides care services for young people unable to be cared for in the foster system. Mars Holdings Plc are looking into the possibility of converting their failing hotel into a provider of care services and Wyre Child Ltd is looking for another property to continue expanding around the UK;

Border Commercials Ltd has a large unit and caters for the storage and repair of up to 60 commercial vehicles at one time, and has the potential for more space as it is based in a large empty industrial area. Border Commercials is looking for a contract with a fleet operator to stabilise their income and growth.

Extracts from the financial statements of both target companies are shown below:

Statements of Profit or Loss (SoPL)

Statements of Financial Position (SoFP)

The ratio analysis below is in 4 categories (Profitability, Management Efficiency, Liquidity and Gearing), and needs completing:

Requirements :
1.1 Prepare a business report, maximum 2 pages long (approximately 800 words) with an appendix for your ratio analysis.

It is to be addressed to the board of directors of Mars Holdings Plc.

You must evaluate the financial statements, interpret the ratio analysis and make a convincing argument for investment in one of the two target companies.

1.2 Your report should be supported with academic references throughout, and your ratio analysis should be put in an appendix to the report.

ACC7032 Managerial Finance Assessment – Birmingham City University UK.

1.3 Create a table that lists the advantages and disadvantages of all the finance options available to Mars Holdings Plc. Explain, with references, the source of finance you recommend as most suitable way to finance the investment in either Wyre Chid services Ltd or Border Commercial Ltd.

Question 1

Marking guide
Carefully examine the marking guide below to ensure that you structure your answer to include every element:

Question 2
Question 2
You work for a consulting firm that has been approached by a client who is concerned about the future of their business. The board of directors of AJ Supplies Ltd are considering halting the production of 2 of their products that appear to be making no profit. As you can see from the table below the directors are considering closing products Bass and Clarinet in an effort to improve overall profitability. You spot that management accounting would show the results differently and may affect the directors’ decision.

Requirements for Question 2 part (a)
i. Use your knowledge of management accounting to calculate the contribution of each product
ii. Use your findings from part (a) and appropriate academic references to explain whether the company should stop making product Bass.
iii. Use your findings from part (a) and appropriate academic references to explain whether the company should stop making product Clarinet.
iv. Discuss how and why marginal costing calculates contribution to pay overheads and why this is useful in evaluating product value to a firm?
v. Do you agree that profitability will improve by ceasing to make Products Bass and Clarinet?
What do you suggest the company does to increase profitability?

Question 2:
The board have approached you to get your opinion of their expansion plan, which includes a chain of factory outlet stores. Below are the figures for the first one that is planned for a central Birmingham location next year.

Company policy dictates that any decision should be based on the results of calculating Net Present Value (NPV) of 3 years cash flows using a cost of capital of 12%, Payback Period (PBP) must be less than 3 years, and the Internal Rate of Return (IRR) of the project should provide a 5% cushion in case of increases in inflation or interest rates.

The investment consists of £4,000 for the land, building costs of £7,900, and £1,830 for fittings and equipment.

The cash flows in year 1 are expected to be: total sales revenue £28,600; the cost of Acoustic products sold £7,900; Bass stock sold £5,660; staff costs £1,180; light & heat £1,676; other overheads £6,424. The cash flows for the following years are the same, but are expected to increase by 2% inflation each year.

Requirements for Question 2 part (b)

Using the information above and in accord with the above stated company policy you are required to calculate:

i. Net Present Value (NPV)
ii. Payback period (PBP) and Discounted Payback Period (DPBP)
iii. Internal Rate of Return
iv. Based on your calculations do you recommend the investment is made and the new outlet store is built?
v. Critically discuss the limitations of the above project appraisal techniques used and any other recommendations to the board.

Question 3
The budgeted statement of Comprehensive Income and Net Assets for GFX Industries are given below:

The current manufacturing facility is under-utilised and there is a proposal to extend sales to a supermarket chain with nationwide stores. However, the supermarket will sell the product under its own brand name.

Estimated effects of the proposal are;
i. Additional annual supermarket sales of 10,000 boxes at £30 per box.
ii. Cost of direct materials would be reduced as a result of 8% quantity discount on all purchases and variable costs are expected to increase by 2%.
iii. Extra supervisory and administrative staff will be required at a cost of £20,000 per annum
iv. Market research has indicated that sales to existing retail outlets would fall by 10%. There will be no change in selling price to these customers.
v. Inventory and payables would increase by £40,000 and £25,000 respectively and the credit period extended to supermarket will be twice that allowed to existing customers.

ACC7032 Managerial Finance Assessment – Birmingham City University UK.

Required:
Prepare the revised budgets to evaluate this proposal. Specifically you should:

a) Prepare a revised budgeted statement of comprehensive income and a statement of net assets employed incorporating the results of the proposal i.e. Revised Sales Budget, Raw Material, Direct Labour, Variable Costs and workings.

ACC7032 Managerial Finance Assessment – Birmingham City University UK.

b) Calculate the effect on profit of the changes resulting from the proposal. Specifically calculate the Per Unit and Total Contribution for the old budget and the new budget.

c) Advise management on the suitability of the proposal making any further calculations you consider necessary and adding any comments or reservations you think relevant.

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