ACC7032 Managerial Finance - Birmingham City University

Learning outcome 1: Evaluate the different competing financial objectives of the firm and the agency problem between shareholders and managers in publicly listed companies.

Learning outcome 2: Demonstrate the ability to analyse financial data, conduct cost-benefit analysis and financial planning for effective business decisions using spreadsheet software package.

Learning outcome 3: 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.

Learning outcome 4: Critically appraise the major issues of capital management, relative advantages and disadvantages from the various perspectives of the stakeholders of the firm.

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.

Requirements

1. Write a 500 word critical personal reflection on why you did not pass this assessment first time and what you have had to do to ensure that you pass this resit;

2. Resubmit your courseworkafter you have made all necessary corrections and acted on the feedback you were given from the first attempt.

Question 1

Prepare a business report, 6 pages long (+/- 10%), to the board of directorsof Sainsburys Plc with tables and graphs that analyse the performance and financial position over at least 5 financial years and recommend actionsthat the board should take.

Utilise search data about the subject company and its competitor(s) from university databases (FAME, MINTEL) examined during seminars as well as the company financial reports and a range of other sources that you are to find for yourself.

Organise the ratios into the 4 categories (Profitability, Liquidity, Efficiency, and Gearing) and calculate horizontal and vertical analysis.

Apart from the graphs, put all the ratios, tables, and analysis in appendices.

Your 6-page business report must include in-depth critical discussion with appropriate academic references and graphs.

Question 2

You work as management consultant and have been approached by a client who is concerned about the future of their engineering business. The board of directors 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 X and Y in an effort to improve overall profitability.

You establish that management accounting would show the results differently and may affect the directors' decision.

Requirements for Question 2 part (a)

i. 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 Y

iii. Use your findings from part (a) and appropriate academic references to explain whether the company should stop making product Z

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 Y and Z? What do you suggest the company does to increase profitability?

The company board have approached you to get your professional advice opinion on their expansion plan, which entails opening another firm. Below are the figures for the first one that is planned for in the north of 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 £5,000 for the land, building costs of £9,480, and £2,196 for fittings and equipment.

The cash flows in year 1 are expected to be: total sales revenue £34,320; the cost of X products sold £8,004; Y stock sold £5,660; staff costs £1,416; light & heat £2,011; other overheads £7,708. 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 opening of the new manufacturing unit?

v. Critically discuss the limitations of the above project appraisal techniques used and any other recommendations to the board.

Question 3 - Essay question

Over the last two decades, companies across the world have been found to be increasingly engaging in corporate social responsibility (CSR) activities as well as sustainability of the environment. Companies are now increasingly publishing substantial amounts of CSR and environmental information within annual reports.