Question: Michael plc is considering buying some equipment to produce a chemical named X14. The new equipment's capital cost is estimated at $100 million.

03 May 2023,8:09 AM

 

Questions for Assessment 1

 

The first assignment is a group coursework assignment constitutes 30% of the assignment for this module. Students are required to write a report by completing the questions. (Maximum 2000 words).

 

Based on your understanding, you are required to discuss and explain in details the following financial concepts.

 

Q1. Discuss and explain by comparing and contrasting the main features of a limited company (10 marks) est. 200 words

1. legal nature,
2. perpetual life
3. limited liability                                                

 

Q2. Discuss and perform a horizontal analysis by comparing and contrasting a limited company’s primary financial statements (20 marks)

1. Revenue
2. Cost of sales
3. Profit for the year
4. Equity
5. Non- current liabilities                                 

 

Q3. Discuss and interpret the cash flow statement of a limited company (20 marks)

1. What is a cash flow statement?
2. Cash flows statement from operating activities
3. Cash flows statement from investing activities
4. Cash flows statement from financing activities   

 

Q4. Discuss and explain what is (10 marks)

1. Internal sources of long-term finance
2. External sources of long-term finance      

 

Q5. Discuss the ethical issues faced by managers (20 marks)

1. Protection of public and employees’ interest.
2. Maximise profit by cutting costs    

 

 

 

Q6. Both John and Mark operate wholesale electrical stores throughout the UK. The financial Statement of each business for the year ended 31 December last year are as follows:

 

Statements of financial position as of 31 December last year

 

John                     Mark

  $m  $m

ASSETS

Non-current assets

Property, plant and equipment

(Cost less depreciation)

Land and buildings                                   360.0                        510.0

fixtures and fittings                                   87.0                          91.2

                                                                  ---------                                 ---------

447.0                     601.2

---------                             ---------

 

Current assets                                                                          

Inventories                                                592.0                        403.0

Trade receivables                                     176.4                        321.9

Cash at bank                                            84.6                          91.6

                                                                  ------------                   -----------

853.0                     816.5

                                                                  ------------                   -----------

Total assets                                            1,300.0                     1,417.7

------------                   -----------

 

EQUITY AND LIABILITIES

Equity                                                        

$1 ordinary' shares                                   320.0                        250.0 

Retained earnings                                    367.6                        624.6

                                                                  -----------                    -----------

687.6                     874.6

                                                                  -----------                    -----------

Non-current liabilities                             

Borrowings — Loan notes                        190.0                        250.0

                                                                  -----------                    -----------

 

Current liabilities

Trade payables                                        406.4                        275.7

Taxation                                                    16.0                            17.4

                                                                  -----------                    ----------

422.4             293.1

                                                                  -----------                    -----------

Total equity and liabilities                     1,300.0                     1,417.7

                                                                  _______                   _______

 

 

Income statements for the year ended December last year

 

John                     Mark

  $m                                  $m

Revenue                                                   1,478.1                     1,790.4

Cost of sales                                            (1,018.3)                  (1,214.9)

                                                                  -------------                 -------------

Gross profit                                               459.8                        575.5

Operating expenses                                 (308.5)                     (408.6)

                                                                  -------------                 -------------

Operating profit                                        151.3                        166.9

Interest payable                                        (19.4)                       (25.5)

                                                                  -------------                 -------------

Profit before taxation                                131.9                        139.4

Taxation                                                    (32.0)                       (34.8)

                                                                  -------------                 -------------

Profit for the year                                  99.9                          104.6

                                                                  ________                 ________

 

All purchases and sales were on credit. The market values of a share in John and Mark at the end of the year were $6.50 and $8.20 respectively.

 

Calculate and discuss the various ratio analysis based on (20 marks)

 

6a.      Profitability ratios

6b.      Efficiency ratios

6c.      liquidity ratios

6d.      gearing ratios        

 

 

 

 

 

 

 

 

 

 

 

Questions for Assessment 2 (est. 3000)

 (est. 1200)

Part A à long term investment plans à 长期资产投资计划（方法）à non-current assets investments

 

Q1. Michael plc is considering buying some equipment to produce a chemical named X14. The new equipment's capital cost is estimated at $100 million. If its purchase is approved now, the equipment can bé bought and production can commence by the end of this year, $50 million has already been spent research and development work. Estimates of revenues and costs arising from the operation of the new equipment are:

 

	Year 1	Year 2	Year 3	Year 4	Year 5
Sales price ($/litre)	100	120	120	100	80
Sales volume (million litres)	0.8	1.0	1.2	1.0	0.8
Variable cost ($/litre)	50	50	40	30	40
Fixed cost ($m)	30	30	30	30	30

 

                                                                                         

If the equipment is bought, sales of some existing products will be lost resulting in a loss of contribution of $15 million a year, over the life of the equipment.

 

The accountant has informed you that the fixed cost includes depreciation of $20 million a year the new equipment. It also includes an allocation of $10 million or fixed over-heads. A separate study has indicated that if the new equipment were additional overheads, excluding depreciation, arising from producing that the chemical would be $8 million a year. Production would require additional working capital of $30 million.

 

For the purposes of your initial calculations ignore taxation.

 

Required:

(a) Deduce the relevant annual cash flows associated with buying the equipment.

(b) Deduce the payback period.

(c) Calculate the net present value using a discount rate of 8 per cent.

(d) Explain (1) what is net present value investment appraisal method, (2) payback accounting rate of return and (3) internal rate of return

 

(Hint: You should deal with the investment in working capital by treating it as a cash outflow at the start of the project and an inflow at the end.)

 

Part B (est. 1800 words)

 

Q2: Demonstrate a critical awareness of how management provides the basic for determining appropriate financial strategies and policies for a company

 

Q3: Use quantitative models and their independent judgement to analyse financial decisions and recommend feasible options that managers can implement

 

Q4: Carry out a systematic and detailed analysis of a company’s performance (profitability) using information from annual reports and accounts, databases and the internet.

 

Q5: Demonstrate an understanding and use the appropriate analytical techniques to be applied to decisions involving the raising of finance, the use of funds or investment projects and the distribution of funds to investors. Based on James, Distributor of foods

 

James, Distributor of foods (case study) Revised

 

March 23 Semester AC7052 SR Assessment 2

The financial statements of James a distributor of foods, the year ended 31 December last year are:

 

Income statement for the year ended 31 December last year

	$000	$000
Sales revenue		820
Cost of sales
Opening inventories	142
Purchases	568
	710
Closing inventories	(166)	(544)
Gross profit		276
Administration expenses		(120)
Distribution expenses		(95)
Operating profit		61
Financial expenses		(32)
Profit before taxation		29
Taxation		(7)
Profit for the year		22

 

 

Statement of financial position as at 31 December last year

	$000
ASSETS
Non-current assets
Property, plant and equipment	364
Current assets
Inventories	166
Trade receivables	264
Cash	24
	454
Total assets	818
EQUITY AND LIABILITIES
Equity
Ordinary share capital	300
Retained earnings	352
	652
Current liabilities
Trade payable	159
Taxation	7
	166
Total equity and liabilities	818

 

All purchases and sales are on credit. There has been no change in the level of trade receivable or payables over the period. 

 

Calculate the length of the operating cash cycle (OCC) for the business.

 

 

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