RDI/EDEXCEL
BTEC Higher Nationals
Programme: Business Management
Module 2: Managing Financial Resources
& Decisions _( Level 4)
Assignment
Date for Submission: 18th February 2013
The submission portal will close at 23.59 (GMT) on 18th February 2013
Tutor: Michael Lloyd- William
You are the finance director of Ambalata public limited company a (fictional) company,
manufacturing street cleaning equipment.
You have been given responsibility for making decisions about the financing and viability of a new
line of low emission street cleaning vehicles. Initial estimates by the company’s market research
department suggest that there is likely to be significant demand for such vehicles from local
authorities both in the UK and abroad. In order to assist you in making relevant decisions you have
assembled a range of documents. These are included as appendices to this assignment and you
should refer to these appendices as you seek to answer the assignment questions below. The
documents are as follows.
APPENDIX 1. Statement of Financial Position for Ambalata plc at 31st December 2011 (Figures for
December 2010 also given for comparison).
APPENDIX 2. Statement of Comprehensive Income for Ambalata plc for year to 31st December 2011
{with 2010 figures for comparison).
APPENDIX 3. Cash flow forecast for an existing Ambalata factory for the next six months.
APPENDIX 4. Cash flows projected for the proposed investment in the new line of vehicles over the
next five years.
ASSIGNMENT REQUIREMENT
Task 1
You should draft a paper setting out sources of finance that are potentially available for Ambalata
to finance their possible investment in new vehicles South America.
This paper should include
i) A table setting out the main features of two long term and two short term sources of
finance, including the main advantages and disadvantages of each of the sources .
( LO 1.1 ,1.2,2.1)
ii) A recommendation concerning which source(s) you would propose using to finance the
proposed investment, were it to go ahead, along with brief reasons for your
recommendation. ( LO 1.3)
Task 2
i) If you decided to raise the £100 million capital required cost for the proposed investment
with half being equity and half debt explain briefly what impact your decision would
have upon the financial statements contained in Appendices 1 and 2. ( LO 2.4,4.1)
ii) Using an appropriate formula, explain what is meant by the concept of the weighted average
cost of capital (WACC). Assuming the above split of equity and debt calculate the
weighted cost of new capital to be raised by Ambalata if the rate of interest on the debt
is expected to be 5% and the cost of equity 8%. ( LO 2.1)
Task 3.
i) Using the figures provided in Appendix 4 calculate both the payback and net present value
of the proposed investment. ( LO 3.3)
ii) Based upon your calculations in (i) above, state what recommendation you would make
about the investment and why? What reservations might you have about how reliable
your recommendation is likely to be? ( LO 3.3)
iii) The figures in Appendix 3 have had to be produced making a number of assumptions about
cost faced by Ambalata and prices that they might charge
a) Define the concept of unit cost and explain briefly how they can be calculated.(LO
3.2)
b) Discuss what factors should be taken into account by an organisation such as
Ambalata when setting prices for their output.( LO 3.2)
Task 4
One of your roles as finance director is to be ultimately responsible for both the profitability and
liquidity of all of Ambalata ‘s operations. Appendix 3 provides a 6 month cash flow forecast for one
of Ambalata ’s existing factories.
i) Comment on the main trends and messages contained within the cash flow forecast.
(LO 2.2,3.1)
ii) Identify different groups who may have an interest in the factory’s cash flow statement and
discuss the different interests that these different groups may have.(LO 2.3)
iii) Explain why a company may be profitable but run into problems with its liquidity.(LO 2.2)
Task 5
i) Using a maximum of four financial ratios analyse Ambalata ’s profitability and liquidity
performance 2010 /11 based upon the financial statements given in Appendices 1 and 2.
(LO 4.1, 4.3)
ii) Ambalata is a public limited company. What are the main differences in the financial
statements of sole traders, partnerships and limited companies? (LO 4.2)
Word limit; 3,500 words, excluding tables, references, footnotes etc
APPENDIX 1. Statement of Financial Position for Ambalata plc December 2011 and 2010.
ASSETS 2011 2010
Non current assets (£000,000) (£000,000)
Property, plant and equipment 1,060 1,088
Intangible assets 200 190
Investments 52 50
Current assets
Inventories 26 25
Trade receivables 17 14
Cash and cash equivalents 3 2
Total assets 1,358 1,369
EQUITY AND LIABILITIES
Equity
Share capital 950 950
Retained earnings 85 24
Other reserves 22 20
Total equity 1057 1044
Non current liabilities
Long term borrowings 235 255
Long term provisions 20 30
Total non current liabilities 255 285
Current liabilities
Trade and other payables 28 32
Short term borrowings 13 13
Short term provisions 5 5
Total current liabilities 46 50
Total liabilities 301 335
Total equity and liabilities 1,358 1,379
Nb tax considerations have been excluded from this statement.
APPENDIX 2
Statement of Comprehensive Income for Ambalata plc for years 31st December 2011 and 2010.
2011 2010 (£000,000) (£000,000) Revenue 722 741 Cost of sales 342 302 Gross profit 380 439 Distribution costs 35 28 Administrative expenses 10 11 Other expenses 6 5 Finance costs 3 3 Profit before tax 326 392 Tax expense 65 68.4 Profit for the year 261 323.8
APPENDIX 3
Month 1 (£,000)
Month 2 (£,000)
Month 3 (£,000)
Month 4 (£,000)
Month 5 (£,000)
Month 6 (£,000)
Sales 1,350 1,750 1,960 3,080 3,350 2,050
PAYMENTS
Wages and salaries 850 850 850 1,460 1,460 1,460
Supplies 450 750 970 1,070 1,240 1,890
Rent and rates 80 80 80 80 80 80
Advertising 50 50 50 50 50 50
Miscellaneous 10 10 10 15 15 15
TOTAL 1,440 1,740 1,960 2,675 2,845 3,495
Receipts minus payments
(90) 10 0 405 505 (1,445)
Balance brought forward
750 660 670 670 1075 1580
Balance carried forward
660 670 670 1075 1580 135
APPENDIX 4
nb Ambalata uses a discount rate of 6% when appraising projects using discounted cash flow analysis
Anticipated capital cost (in year zero) £100,000,000
Year Cash Inflow
(£000) Cash Outflow
(£000)
1 81,500 47,000
2 133,100 58,100
3 159,800 62,900
4 165,900 68,900
5 198,500 92,300
Assessment Criteria for Pass
To achieve a pass you must meet all of the assessment criteria as stated
below. Failure to cover all of the assessment criteria will result in a referral
grade and you be required to re-submit your assignment.
Further guidance on completion of your assignment can be found in the
guidance notes which are posted on the group learning space by your
module tutor. For additional support please post questions onto the group
learning space, or email your module tutor
Learning
Outcomes/
Assessment
Criteria
Criteria Met
For tutor
use
(you may
wish to use
this in your
preparation
for your
assignment
submission)
LO 1 Understand the sources of finance available to a business
1.1 identify the sources of finance available to a business Task 1 i
1.2 assess the implications of the different sources Task 1 i
1.3 evaluate appropriate sources of finance for a business project Task 1 ii
LO2 Understand the implications of finance as a resource within a business
2.1 Analyse the costs of different sources of finance Task 1 I; task
2 ii
2.2 explain the importance of financial planning Task 4 I, task
4.iii
2.3 assess the information needs of different decision makers Task 4 ii
2.4 explain the impact of finance on financial statements Task 2 i
LO3 Be able to make financial decisions based on financial information
3.1 analyse budgets and make appropriate decisions Task 4 i
3.2 explain the calculation of unit costs and make pricing decisions using relevant information
Task 3 iii
3.3 assess the viability of a project using investment and appraisal techniques
Task 3 i and
ii
Be able to evaluate the financial performance of a business
4.1 discuss the main financial statements Task 2 i;
Task 5
4.2 compare appropriate formats of financial statements for different types of business
Task 5 ii
4.3 interpret financial statements using appropriate ratios and comparisons, both internal and external
Task 5 i
Assessment Criteria for Merit
To achieve a Merit all of the Pass criteria need to be met, then the tutor
will assess whether you have met the Merit Criteria. Each of the Merit
criteria must have been met at least once within the assignment.
The following statements are examples of how a merit may be achieved,
if you do meet the Merit Criteria by showing you have reached this level in
other ways then credit will be awarded for this. You will need to meet M1,
M2, M3 at least once.
Effective judgments have been made on the basis of accurate
cash flow forecasting
Good knowledge of working capital/liquidity management has
been displayed
Good knowledge of appropriate sources of long term finance are
displayed
M1
Effective use has been made of appropriate investment appraisal techniques and other calculations eg WACC
M2
A clear, concise and logical flow has been achieved
Use of Harvard referencing throughout
Relatively few omissions and confusions exist
M3
Assessment Criteria for Distinction
To achieve a Distinction you have met all of the Pass and the Merit
criteria. Each of the Distinction criteria must be met at least once within
the assignment.
The following statements are examples of how a Distinction may be
achieved, if you do meet the Distinction Criteria by showing you have
reached this level in other ways then credit will be awarded for this. You
will need to meet D1,D2,D3 at least once.
A reflective approach will be evident throughout and in particular in areas like evaluation of sources of business finance and uses /limitations of investment appraisal techniques
D1
Independent research, outside of what has been provided in
class, has been utilised to prepare a thorough set of answers
D2
Ideas are evaluated for their validity & realism in the context of
the answers
An attempt is made at an evaluation of optimal approaches to
financial management conclusions
D3
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