Page 1 of 6 ASSIGNMENT INSTRUCTIONS Interim/Final: Final First/Resit First Assessment Code: 011 Academic Year: 2016/17 Semester: 2 Module Title: Business Finance Module Code: MOD003319 Level: 4 Module Leader: Tim Price Weighting: 50% Word Limit: 3000 words Submission Date: This assignment must be received by no later than 14:00 on Wednesday, 17 May 2017 WRITING YOUR ASSIGNMENT:  This assignment must be completed individually.  The Harvard Referencing System must be used.  Your work must indicate the number of words you have used. Do not exceed the maximum number of words specified above; all assignments which do so will be penalised. The penalty will be the deduction of marks at the Marker’s judgement.  Assignment submissions are to be made anonymously. Do not write your name anywhere on your work. Write your student ID number at the top of every page.  Where the assignment comprises more than one task, all tasks must be submitted in a single document.  You must number all pages. SUBMITTING YOUR ASSIGNMENT:  You must submit your assignment using Turnitin software and obtain a receipt.  Requests for short-term extensions will only be considered in the case of illness or other cause considered valid by the Welfare Adviser ([email protected]). These must normally be received and agreed by the Welfare Adviser in writing at least TWENTY-FOUR (24) hours prior to the deadline.  Mitigation claims must be submitted by the student or in exceptional circumstances (e.g. when a student has been hospitalised) by a Director of Studies, Programme Leader or Student Adviser on behalf of the student no later than five working days after the deadline.  Work submitted up to 5 working days after the deadline will be marked. The penalty for missing the deadline will be the capping of the mark for the assessment at 40%.  Work cannot be uploaded to Turnitin after the 5 working day period following the deadline. A mark of 0% will be recorded unless an extension has been approved in advance of the deadline. Please refer to the Academic Regulations or your Student Handbook for full details. Page 2 of 6 Task Part 1 Excellence Electrics Ltd (“EEL”) owns and operates three factories in London, Birmingham and Manchester producing electrical components for household appliances. The company last year had turnover in excess of £35 million. The company is managed by Dieter Braun, the grandson of the founder who established the business in the 1930s making radio parts. Dieter owns 25% of the shares in the company, while the remaining 75% is split between three other grandchildren, Hild, Angela and Ragnar. Most of EEL’s clients are large manufacturers in the UK and EU. Two key customers are Canterbury Cookers Ltd and Radios Formidables SA. The other shareholders are concerned about the business. Although there seems to be plenty of work coming in and the last year has been reasonably profitable (Operating profit was £5 million last year before interest and tax), the company’s debt has increased to £18 million from £15 million the year before and Dieter has started talking about the need for them to invest more money to reduce the debt. The company is owed £1.5 million pounds for a series of large orders placed by Canterbury last year. There is also an outstanding dispute about a £2 million consignment for Radios Formidables completed in 2015 which has led to payment being withheld while negotiations continue between lawyers and technical specialists. There is a further problem that Dieter believes the Radio Formidable issue arose from faulty workmanship by a contractor EEL engaged in 2014. He has refused to pay the contractor who is now threatening legal action. Because this area of work has been suspended a large stock of materials and supplies has built up at the company’s London site. Dieter insists that the company needs to have this level of stock for when the dispute is sorted out He is also reluctant to press his key customers too hard for payment. The sisters have approached EEL’s accountants to review the situation. Requirements: Putting yourself in the position of the accountants, prepare a report of no more than 1,500 words for the shareholders communicating the following issues: i. A clear understanding of the difference between profitability and cashflow and how these are expressed in the company’s accounts. (25 marks) Page 3 of 6 ii. Explaining the application of the concept of working capital management to the company and how the current situation is a reflection of how the business in managed. (10 marks) iii. Analysing what steps should now be taken to improve the company’s working capital management. (15 marks) Part 2 Continuing with EEL, Dieter is contemplating investing in a new facility in either Leeds or Bristol. Both will involve a significant investment, and, assuming the issues noted above are sorted out, the shareholders have the resources to finance either project but not both. The Leeds venture would involve construction on a derelict site from scratch which will cost £10m and would operate for 9-10 years before substantial further investment would be required. The Bristol venture involves taking over an existing but slightly out of date plant. This will need about £6 million investment and will have an expected useful life of 5-6 years. In the past, to assess the financial viability of new projects, the company has only considered profitability. At present it does not have any formal procedure for assessing capital projects. Requirements: Prepare a report of no more than 1,500 words for the shareholders communicating the following issues: i. An understanding of the stages of the capital budgeting process and of the main capital investment appraisal methods (25 marks) ii. The potential application of these methods to the projects under consideration (10 marks) iii. Analysing which of these methods (or a combination) would be most appropriate for the decision making process in this case (15 marks) (Total marks: 100) Page 4 of 6 Assessment Criteria This assignment requires you to demonstrate your knowledge and understanding of a) the management of cash and b) the capital budgeting process. Your discussion for part 1 of the assignment should distinguish the difference between cash and profit. Your answer must identify and explain why the accounts of a business can report a profit but a shortage of cash, and discuss the consequences to a business of being short of cash. The general causes of cash flow problems should be analysed using real world examples to illustrate your points and, specifically the case study presented to you. Methods for dealing with cash flow problems and managing cash for the business described should be proposed and evaluated. Your answer for part 2 of the assignment should identify and explain the benefits of having a formally documented capital investment appraisal process. You must outline and explain the stages involved in the capital budgeting process including initial investigation through to the post completion audit. Your answer should provide a breakdown of the capital investment appraisal methods covered in the course (ie payback, NPV and IRR) and their relative advantages and disadvantages. You should then consider these methods in the context of the business described and assess how they would allow an informed choice of project to be made. You should consider the scale, duration and risk levels of the projects. You should ensure that your answers make specific reference to the business under discussion. Note that, although you are not expected to show any specialist knowledge of the sector in which the business operates, credit will be given for evidence that you have considered what issues might be specific to this company in particular. You may illustrate your answer with hypothetical numbers where this aids understanding of your work, but there are no “right” answers to what these numbers should be. Your answer must not be solely descriptive in nature; it should provide clear evidence of understanding, application and analysis of the issues under consideration. You should assume that your reader has some experience in finance and management but is uninformed on the particular topic; for instance, in i) you do not need to explain what “accounts” are, but you do need to show what their purpose is for this business in this context. The answers to the questions should be supported by academic theories and concepts and the paper must comply with the academic report format and the Harvard referencing guidelines. There is no correct number of academic references to be utilised as you must draw as many references as required to provide a high quality answer. However, a minimum of 8 academic sources are expected, and a majority of these should be current, internationally peer reviewed articles or journals, or accredited textbook references. Sources available only online should be avoided. Page 5 of 6 Your work should be expressed clearly and fluently using a style of writing appropriate to the subject area. Sentences and paragraphs need to be relevant, well-structured and incorporate the correct terminology. Ideally, there should be no errors of spelling, punctuation or grammar. Specific Module Guidance To achieve a pass mark you must ensure that you correctly identify and explain the underlying concepts and theories relevant to the assignment. To achieve higher marks, in addition to the requirements to achieve a pass mark, you will need to display application of knowledge and analytical skills. Answer outline Answers should follow the order of the tasks set out above and the word count allocation to each section should broadly reflect the spread of marks. Marking guide 0%-29%  Negligible understanding of the subject  The point of the exercise has been missed  Inability to communicate basic understanding.  The work is lacking in any organisation  Negligible application  Negligible analysis  Negligible or inappropriate use of source materials  Excessive reliance on source materials which add little or no value  Little or no understanding of Harvard referencing  Grammar and vocabulary errors make comprehension difficult/impossible 30-39%  The overall message is hard to follow or may lack focus.  The point of the exercise has been missed  Ideas are not developed beyond basic restatements.  The work is lacking in organisation  Limited application  Limited analysis  Use of source materials is extremely limited  Excessive use of direct quotations  Weak understanding of Harvard referencing  Grammar and vocabulary errors make comprehension difficult 40-49%  The overall message is poorly developed or may deviate significantly  Ideas are poorly developed with little analysis  The organisation of paragraphs or sections does not help the reader’s understanding  Basic application  Basic analysis  Use of source materials is limited or excessive use of direct quotations  Poor understanding of Harvard referencing; inconsistencies and Page 6 of 6 errors  Grammar and vocabulary errors cause strain to the reader 50-59%  The overall message can be followed but is not always clear or fluent  Ideas begin to develop but lack critical insight  The work is organised to a basic structure but may lack cohesion  Reasonable attempt to apply knowledge  Some reasonable analysis and sensible good conclusions  Adequate use of source material  Adequate use of Harvard referencing  Grammar and vocabulary errors exist but do not cause strain  Technical and academic vocabulary can be seen emerging 60-69%  The overall message is clear  Ideas begin to develop and critical analysis is applied  The work is well structured, which aids the reader’s comprehension  Thoughtful and appropriate application of knowledge  Intelligent analysis showing context and insight  Good use of source material and source analysis  Accurate use of Harvard referencing  No notable grammar errors, low frequency vocabulary used effectively  Technical and academic vocabulary is demonstrated 70%+  The overall message is lucid throughout and is clearly identifiable  Ideas are adeptly developed and argued  The structure of the work helps to deliver the overall point  Application of knowledge Illuminates and enhances understanding  Penetrating analysis showing detailed appreciation of context and implications for the business  Excellent use of numerous sources, which are analysed  Flawless use of Harvard referencing  No grammar or punctuation errors  A broad technical and academic vocabulary