PART A (50%)
Question 1 AA Dent plc (25%)
The finance manager of AA Dent plc is evaluating two mutually exclusive projects with
the following cash flows.
The company’s current return on capital employed is 10 per cent (average investment
basis) and the company uses straight-line depreciation over the life of the project i.e.
5years with a 0 zero residual value. (straight line depreciation means equal monetary
amount of depreciation each year).
(a) Advise AA Dent plc which project should be undertaken using:
(i) the payback method of investment appraisal
(ii) the accounting rate of return (ARR) method of investment appraisal:
(iii) the net present value method of investment appraisal. (16%)
(b) Critically assess and discuss the problems that arise for the net present value
method of investment appraisal when capital is limited, and explain how such
problems may be resolved in practice. (9%)
Question 2 Moore Electronics (25%)
Moore Electronics manufactures electrical components, which are sold to industrial
users. The abbreviated financial statements for each of the last two years are as
Year Project X (£) Project Y (£)
0 (100,000) (190,000)
1 55,000 60,000
2 55,000 60,000
3 40,000 60,000
4 40,000 110,000
5 30,000 65,000
Income Statement for the year ended 31 December
Revenue 1,500 1,560
Cost of sales (880) (980)
Gross profit 620 580
Operating expenses (220) (248)
Depreciation (66) (80)
Operating profit 334 252
Interest (-) (23)
Profit before taxation 334 229
Taxation (86) (44)
Profit for the year 248 185
Statements of financial position as at 31 December
Property, plant, and equipment 752 734
Inventories 159 276
Trade receivables 116 182
Cash 7 9
Total assets 1,034 1,201
EQUITY AND LIABILITIES
Capital: (£1 shares)
Retained earnings 274 335
Borrowings – bank loan 10 80
Trade payables 80 98
Other payables and accruals 29 28
Taxation 58 37
Short-term borrowing (all overdraft) 113 143
Total equity and liabilities 1,074 1,231
Dividends were paid on ordinary shares of £90,000 and £94,000 in 2019 and 2020,
Calculate the following financial ratios for both years (using year-end
figures for statement of financial position items):
i. Return on capital employed. (2%)
ii. Operating profit margin. (2%)
iii. Gross profit margin. (2%)
iv. Current ratio. (2%)
v. Acid test ratio. (2%)
vi. Settlement period for trade receivables. (2%)
vii. Settlement period for trade payables. (2%)
viii. Inventories turnover period. (2%)
Produce a report for the Board of Directors of Moore Electronics that evaluates the
performance of the company across the two years within the areas of profitability, liquidity, and
efficiency. You may wish to suggest methods for improving these key indicators and the overall
performance of the business. (9%)
PART B (50%)
Question 3 Aluminium Manufacture Corporation (50%)
The Aluminium Manufacture Corporation designs and manufactures aluminium for the
construction sector for years; the company enjoyed a stable marketplace and a
relatively predictable business environment. Although there had been a boom in
residential construction in recent years, commercial work was on the decline. As a
result, all the aluminium manufacturers were going further afield to big jobs. In order
to survive, Aluminium Manufacture Corporation was therefore forced to bid on jobs
previously thought to be out of their geographical area. Survival depended upon
staying competitive. However with the declining conditions of the market and the
evolution that had drastically changed the character of the market place, the
Aluminium Manufacture Corporation previously successful approach was now in
With the removal of trade barriers and other Globalized international trade
agreements, the Aluminium Manufacture Corporation found itself competing with
other aluminium manufacturers headquartered in countries around the world. A
decision was then made to transfer several manufacturing machines to a new site in
Eastern Europe to allow more agility and efficiency within their manufacturing supply.
The project was to include the transfer of 6 industrial aluminium processing machines,
along with ancillary equipment into Central Europe (Hungary). Scheduling the project
had to take five months from end of October before production must start on April to
supply potential customers. A site had been selected although the appointed Project
Manager and potential team members had not visited the area, nor did they understand
the weather conditions of wind, rain and snow that prevailed in this area. The
processing machines were to be transported by sea and then road haulage before
arriving at the new site. Road infrastructure was again an area that required attention.
Frank Smith has been appointed as the Project manager for this installation transfer.
He is a 31-year-old graduate of a well known University in the UK with a first degree in
Mechanical Engineering. After graduation, he worked for six years in Engineering
Design Industries. Although he took a significant pay cut, he jumped at the opportunity
to return to his home location with Aluminium Manufacture Corporation. His job in
Engineering Industries had been very demanding. The long hours and extensive
travelling had created tension in his marriage. He was looking forward to a normal job
with reasonable hours, or so he thought. While working in Engineering Design
Industries, Lewis worked on projects and installed new Engineering designs. He was
confident that he had the requisite technical expertise to excel at his new job with the
Aluminium Manufacture Corporation.
Frank had a part-time team of four assistants on placement from the departments within
Aluminium Manufacture Corporation. At first, he was not sure how freely he could
delegate work to the assistants bearing in mind they also reported to other managers
within the organisation. He quickly realised that they were all very bright, competent
workers who were anxious to leverage this project experience into a lucrative career.
The project transfer has an investment of 1 Million pounds and is scheduled to take 5
months to complete; taking into account, the project would be completed during the
winter which would be difficult. Lewis and his team would first need to visit the new
location and start to consider the project activities.
You are required to prepare a report concerning the main issues to be addressed by
Frank Smith from a project management perspective.
From a project management perspective base on Project life cycle outline the
activities required to be completed by Frank Smith to successfully implement this new
initiative. Note that Frank Smith is only Project Managing the transfer of equipment
and not the actual facility building project. Assume the building has already been
Your report should be based on the four stages of Project life cycle and include
examples of the concerns, Project Life cycle stages, associated with managing the
lifecycle of this major project.
In your Project Report you must at a minimum provide the following:
i. Project Scope Statement.
ii. Work Breakdown Structure (with brief details of work packages).
iii. Network diagram.
iv. Cost appraisal methods (theory) that could be used to ensure that the project can be
delivered on-time and within budget.
v. Any other relevant table or information as an Appendix.
Note also that any practical examples in relation to relevant theories should be derived
from the case study