Need help- ACC7001:Managerial Finance


  Need help- ACC7001:Managerial Finance

POSTGRADUATE  DEGREES

COURSEWORK FRONT SHEET

MODULE TITLE:                   Managerial Finance (1)

MODULE CODE:         ACC7001

ISSUE DATE:              10th Oct

HAND IN DATE:          11th Dec,  12.00 PM Midday

HAND BACK DATE:   13th Jan, Next Year

Learning outcomes and pass attainment level:

 

1.    Evaluate the financial performance of an organisation using financial and narrative information.
2.    Apply appropriate costing and budgeting techniques to assist in making management decisions.
3.    Evaluate investment projects using various appropriate techniques.

3.

 

 

 

 

General guidance

 

The assessment for this unit is one coursework assignment. The required mark has been set 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. When determining the amount of effort and words for each section of the assignment it will be advisable to examine the weighting of the marks allocated to each question. If any part of the assignment is ignored then this reduces the maximum marks which could potentially be earned.

 

The word limit to any potential narrative question in the third section alone will be a maximum of 1,500 words excluding the cited references. There is no word limit to questions 1 and 2.

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 spreadsheets have been used to support your work.

 

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.

 

 

 

 

 

 

 

 

 

Indicative marking guide

Fail

(0%-49%)

Pass

(50%-59%)

Commendation

(60%-69%)

Distinction

(70%-100%)

Question 1
A lack of breadth and depth of financial analysis techniques accompanied by incorrect formulae or calculation without appropriate explanation.

Poor layout or presentation in anything other than business report style. Inadequate grammar and lacking in overall knowledgeable synthesis.

 

Evidence of some financial analysis techniques but with errors of formulae and calculation with insufficient explanation and adequate presentation.

Attempt at a business report format with some supportive appendices. Mainly descriptive with some attempt at synthesis. Grammar and structure being adequate.

Wide range of financial analysis techniques evident and supported by full disclosure of formulae and accurate calculation in a clear format.

Presented in business report format and coherently structured. Supported by referenced appendices. Effective and well-reasoned narrative discussion.

An excellent range of financial analysis techniques which are supported by full disclosure of formulae and accurate calculation in a clear format.

Excellent business report format and well structured. Supported by fully referenced appendices. Excellent analytical and justified explanations showing synthesis and application.

Question 2
A lack of understanding of preparing cash budget and capital budgeting techniques is evident. Unable to correctly prepare cash budget and apply techniques of capital budgeting. Has limited or no narrative discussions.

 

Some understanding of preparing cash budget and capital budgeting techniques is evident. Partially correct cash budget and application of techniques of capital budgeting. Narrative analysis partially covers the requirements.

.

A good understanding of preparing cash budget and capital budgeting techniques is evident. Correct cash budget and A good application of techniques of capital budgeting in the given scenarios. Narrative analyses are adequate and explain the use of financial information for decision making.

.

Excellent understanding of preparing cash budget and capital budgeting techniques is evident. Cash budget and application of techniques of capital budgeting in the given scenarios are both correct and exceptionally well presented including workings. Narrative analyses are quite objective and well-written and explain in detail the use of financial information for decision making. .
Question 4
Failure to engage with the topic and lacking credible academic argument. No evidence of research other than internet sites of dubious quality. Poorly structured and partial coverage of the contents with weak grammar.

 

Partial engagement with the topic with some limited evidence of research. Some analysis of the two approaches provided. Grammar, structure and layout adequate. Identification and conclusion of arguments surrounding the topic with reference to credible academic citations that are fully referenced in a bibliography. Well-structured and coherent narrative employing above average grammar and evidencing significant student research.

 

Thoroughly developed arguments with well referenced credible academic sources. Well-structured and presented evidencing excellent grammar and extensive student research and analysis of the topic area.


Question 1

Alliance Pharma is a British Pharmaceutical firm. The company’s financial statements for the period 2011-2015 are presented below.

Required:

Prepare a business report for Alliance’s board of directors analysing the company’s financial performance between the periods 2011-2015. Your report should utilise key ratios, horizontal and vertical analysis and make reference to relevant developments within Alliance Plc.                                                                                                                                                                                                                     Total Marks (50)

Alliance Pharma
Income Statement
2015 2014 2013 2012 2011
£000s £000s £000s £000s £000s
Revenue 48,344 43,536 45,275 44,897 45,957
Cost of sales -19,614 -18,493 -17,944 -19,779 -21,469
Gross profit 28,730 25,043 27,331 25,118 24,488
Operating Expenses:
Admin & Marketing Exps -17,480 -12,510 -12,917 -11,856 -11,235
Amortisation of Intangible assets -199 -488 -422 -573 -735
Share-based employee remuneration -615 -571 -632 -369 -179
Share of joint venture profits 194 319 -48 0 0
Total operating expenses -18,100 -13,250 -14,019 -12,798 -12,149
Operating profit/loss excluding Exceptional items) 10,630 11,793 13,312 12,320 12,339
Exception Items 6,332 -622 0 0 0
Operating profit/loss 16,962 11,171 13,312 12,320 12,339
Finance cost -1,780 -1,014 -1,303 -1,511 -1,627
Profit before taxes 15,182 10,157 12,009 10,809 10,712
Taxation -2,490 -1,772 -2,425 -2,119 -2,076
Profit for the year 12,692 8,385 9,584 8,690 8,636

 

 

 

Alliance Pharma Plc
Balance Sheet
2015 2014 2013 2012 2011
£000s £000s £000s £000s £000s
Non-current assets
Intangible assets 259,945 88,875 87,111 79,890 66,130
Property, plant and equipment 1,013 396 592 564 765
Joint Venture investment 1,465 1,271 533 0 0
Joint Venture receivable 1,462 1,462 1,462 0 0
Deferred tax asset 418 194 0 0 0
Other non-current assets 122 0 443 0 0
Total non-current assets 264,425 92,198 90,141 80,454 66,895
Current assets
Inventories 12,910 5,914 5,468 5,393 5,652
Trade and other receivables 11,630 8,322 10,641 10,145 8,660
Cash and cash equivalents 3,229 1,434 687 4,634 1,079
Total current assets 27,769 15,670 16,796 20,172 15,391
Total assets 292,194 107,868 106,937 100,626 82,286
Equity
Ordinary share capital 4,682 2,641 2,641 2,430 2,401
Share premium account 108,308 29,388 29,380 25,297 24,866
Share option reserve 2,610 1,995 1,424 792 423
Reverse takeover reserve -329 -329 -329 -329 -329
Other reserve -98 -103 350 0 -4
Translation reserve 32 0 0 0 0
Retained earnings 47,237 37,188 31,202 23,658 16,771
Total equity 162,442 70,780 64,668 51,848 44,128
Liabilities:
Non-current liabilities
Long term financial liabilities 58,968 19,235 20,881 20,225 15,225
Convertible debt 0 0 0 0 4,460
Other liabilities 1,496 0 0 20 40
Derivative financial instruments 120 129 0 0 0
Deferred tax liability 37,413 6,309 6,294 6,124 4,064
Provision for other liabilities 0 0 199 364 510
Total non-current liabilities 97,997 25,673 27,374 26,733 24,299
Current liabilities
Cash and cash equivalents 31 414 2,125 1 1
Financial liabilities 15,776 2,895 2,895 6,250 4,250
Convertible Debt 0 0 0 4,189 0
Corporation tax 2,075 959 1,154 1,322 1,046
Trade and other payables 13,873 6920 8,531 10,086 8,367
Derivative financial instruments 0 0 0 0 6
Provisions for other liabilities 0 227 190 197 189
Total current liabilities 31,755 11,415 14,895 22,045 13,859
Total liabilities 129,752 37,088 42,269 48,778 38,158
Total equity and liabilities 292,194 107,868 106,937 100,626 82,286
  2015 2014 2013 2012 2011
Alliance Pharma 49.75 33.75 32.5 32.1 29.3
FTSE100 6960.6 6598.4 6430.1 5737.8 6069.9

 

 

Question 2

 

  1. a) Cash Budget

On December 1, 2016, Zipper Co. is attempting to project cash receipts and disbursements through January 31, 2017. On this latter date, a note will be payable in the amount of £50,000. This amount was borrowed in September to carry the company through the seasonal peak in November and December.

Selected general ledger balances on December 1 are as follows:

Cash                                      £ 44,000

Inventory                                  32,600

Accounts payable                                        £68,000

Sales terms call for a 3% discount if payment is made within the first 10 days of the month after sale, with the balance due by the end of the month after sale. Experience has shown that 50% of the billings will be collected within the discount period, 30% by the end of the month after purchase, and 14% in the following month. The remaining 6% will be uncollectible. There are no cash sales.

The average selling price of the company’s products is £50 per unit. Actual and projected sales are as follows:

October actual                                                                                  £ 140,000

November actual                                                                                 160,000

December estimated                                                                          165,000

January estimated                                                                              125,000

February estimated                                                                             120,000

Total estimated for year ending June 30, 2017                       £1,200,000

All purchases are payable within 15 days. Approximately 60% of the purchases in a month are paid that month, and the rest the following month. The average unit purchase cost is £40. Target ending inventories are 500 units plus 10% of the next month’s unit sales. Total budgeted marketing, distribution, and customer-service costs for the year are £300,000. Of this amount, £60,000 are considered fixed (and include depreciation of £15,000). The remainder varies with sales. Both fixed and variable marketing, distribution, and customer-service costs are paid as incurred.

 

Required:

Prepare a cash budget for December 2016 and January 2017. Supply supporting schedules (workings) for collections of receivables; payments for merchandise; and marketing, distribution, and customer-service costs.        (15 Marks)

 

  1. b) Capital Budgeting

John Cooper Plc. is an international clothing manufacturer. One of its manufacturing units in Milan, Italy will become idle on December 31, 2016. You have been asked to look at three options regarding the plant.

Option 1: The plant, which has been fully depreciated for tax purposes, can be sold immediately for €225,000.

Option 2: The plant can be leased to the Anderson Corporation, one of John Cooper’s suppliers, for four years. Under the lease terms, Anderson would pay John Cooper €55,000 rent per year (payable at year-end) and would grant John Cooper a €10,000 annual discount off the normal price of fabric purchased by John Cooper. (Assume that the discount is received at year-end for each of the four years.) Anderson would bear all of the plant’s ownership costs. John Cooper expects to sell this plant for €37,500 at the end of the four-year lease.

Option 3: The plant could be used for four years to make souvenir jackets for the Olympics. Fixed overhead costs (a cash outflow) before any equipment upgrades are estimated to be €5,000 annually for the four-year period. The jackets are expected to sell for €27.50 each. Variable cost per unit is expected to be €21.50. The following production and sales of jackets are expected: 2017, 9,000 units; 2018, 13,000 units; 2019, 15,000 units; 2020, 5,000 units. In order to manufacture the jackets, some of the plant equipment would need to be upgraded at an immediate cost of €40,000. The equipment would be depreciated using the straight-line depreciation method and zero terminal disposal value over the four years it would be in use. Because of the equipment upgrades, John Cooper could sell the plant for €67,500 at the end of four years. No change in working capital would be required.

 

John Cooper treats all cash flows as if they occur at the end of the year, and it uses an after-tax required rate of return of 10%. John Cooper is subject to a 35% tax rate on all income, including capital gains.

 

Required:

  1. Calculate net present value of each of the options and determine which option John Cooper should select using the NPV criterion. (10 Marks)
  2. Calculate the IRR for Option 3. Can the IRR of Option 2 be calculated? Explain. (2 Marks)
  3. What nonfinancial factors should John Cooper consider before making its choice?                     (3 Marks)                 Total Marks (30)

 

 

Question 3

 

Recent accounting scandals including Enron have been argued to be the result of rule based accounting. Companies, such as Enron, involved in accounting scandals have been claimed to have skilfully taken the advantage of the fine details of rule based accounting standards (US GAAPs) to manipulate accounting threshold for legal and illegal dealings (Ijiri, 2005).

 

There is now this debate that rules-based approach (such as the US GAAPs) should be abandoned in favour of a principle-based approach such as (IFRS).

 

Required:

 

Critically analyse both rules-based and principles-based approaches of financial accounting and reporting. Evaluate the merits and demerits of each approach and their implications for quality of accounting and financial reporting.  Total Marks (20)

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