Managing Financial Resources and Decisions

Managing Financial Resources and Decisions

Unit Assignment

Please note that this assignment brief must be internally verified before use, even if you do
not change the brief in any way, to ensure that it meets the specific needs of your students.

This unit’s assignments are collated below for ease of reference. Separate files are available for printing or electronic dissemination.

Assignment 1 – Sources of Finance

Purpose
This assignment provides a framework within which the learner can show that they have achieved learning outcomes 1 and 2 to:

•    understand the sources of finance available to a business
•    understand the implications of finance as a resource within a business

The relevant assessment criteria are indicated within each of the tasks.

Scenario
A business organisation asks you for advice about different sources of finance. They have decided to expand and require finance to fund the expansion. The expansion

will involve:

•    the purchase of new premises
•    purchase of some new equipment (some existing equipment will be moved to the new premises)
•    a need for extra working capital (to fund stock, materials, consumables etc)

You should base your response on your own organisation or an organisation you are familiar with or able to research.

Task 1
Prepare a report or presentation describing the different sources of finance available to the business and their suitability for the different finance requirements set

out above.

You will need to:
a)    Explain the importance of financial planning and the implications of failing to plan adequately (Assessment Criteria 2.2)

b)    Identify the sources of finance that may be available to the business (Assessment Criteria 1.1)

c)    Explain the advantages and disadvantages of the main sources of finance and assess the suitability of each source for the purposes identified above (Assessment

Criteria 1.2,1.3)

d)    Recommend suitable sources of finance for the expansion and – for each different source – explain the cost implications for the business and how the finance

will appear in the financial statements. (Assessment Criteria 1.3, 2.1, 2.4)

e)    Explain the information that will be required to assess the level of finance required from each source and information that will need to be supplied to lenders

or investors providing the finance. (Assessment Criteria 2.3)

If you are producing a presentation remember to include supporting notes and any handouts

Assignment 2 – Budgeting, cost and pricing decisions

Purpose
This assignment provides a framework within which the learner can show that they have achieved learning outcome 3 and are able to:

•    make financial decisions based on financial information.

The relevant assessment criteria are indicated within each of the tasks.

Scenario
Kayler Engineering are an engineering company who make specialist parts for the aircraft manufacturing industry. They have prepared a cash budget for the next three

months but have since received an additional enquiry about parts. Part XS1 needs to be manufactured to the client’s specifications. The company have decided that they

have the production capacity to fulfil the order but need to calculate a selling price for each part and assess the impact on the cash budget to decide whether

additional funding would be required if the client orders the parts.

Task 1
The new contract is for 75 XS1 parts. The materials for these will cost £55 000; direct wages to engineer the parts will be £45 000; Other direct costs will amount to

£25000. (Assessment Criteria 3.2)

a)    What is the direct unit cost for each part?

b)    Explain how and why unit cost is calculated.

c)    The target mark up for this type of product is 25% on direct costs. What would the selling price per unit be based on the target mark up?

d)    If the company win the contract it will mean ongoing sales. They have heard that a competitor sells similar parts for £2000 each. The Sales Director thinks

they will need to beat this price by £50 per item to be sure of winning the contract but may be able to persuade the client to buy more items at the cheaper price.

e)    How many more items do they need to sell at a price of £1950 to make the same contribution as 75 items at the selling price calculated above?

Task 2
a) If they win the contract, the materials and other direct costs plus one third of the wages will fall into month one. The remainder of wages will be charged in month

2. Income will be received in Month 3. Calculate the impact on the existing cash budget (below) and identify any additional finance needs. (Assume you are selling 75

items at your original calculated selling price). (Assessment Criteria 3.1)

Month 1    Month 2    Month 3    Total
Opening balance    40 000    90 000    245 000    375 000
Receipts from Debtors    1 250 000    1 500 000    1 400 000    4 150 000
1 290 000    1 590 000    1 645 000    4 525 000
Payments:
Materials    500 000    600 000    550 000    1 650 000
Wages    500 000    550 000    600 000    1 650 000
Other costs    200 000    195 000    190 000    585 000
1 200 000    1 345 000    1340 000    3 885 000
Closing Balance    90 000    245 000    305 000    640 000

b) The client has indicated that they may be willing to pay a 10% deposit up front. Explain what difference this would make to any finance needs.

Assignment 3 – Capital investment decisions

Purpose
This assignment provides a framework within which the learner can show that they:

•    Are able to make investment decisions based on financial information

The relevant assessment criteria are indicated within each of the tasks.

Scenario
Kayler Engineering are looking at three new projects and have the following information available:

Project 1    Project 2
Profit
£    Cash Flow
£    Profit
£    Cash flow
£
Year 1    20 000    30 000    15 000    27 000
Year 2    15 000    25 000    10 000    22 000
Year 3    12 500    22 500    7 500    19 500
Year 4    17 500    27 500    12 500    24 500
Year 5            25 000    37 000

Both projects require an initial investment of £75 000. The machinery for project 1 will be sold for £35 000 at the end of year 4. Project 2 machinery will be sold at

the end of year 5 for £15 000.

The cost of capital is 15% and relevant discount rates are:

Year 1        0.869
Year 2        0.756
Year 3        0.659
Year 4        0.571
Year 5        0.497

Task 1
Calculate for each project:
a)    Payback period
b)    Accounting rate of return
c)    Net present value

Task 2
Write a report to the company explaining your calculations and the advantages and disadvantages of each of the methods used. Make a recommendation to the company on

which project they should invest in giving reasons for the choice. (Assessment Criteria 3.3)
Assignment 4 – Financial performance

Purpose
This assignment provides a framework within which the learner can show that they:

•    Are able to evaluate the financial performance of a business

The relevant assessment criteria are indicated within each of the tasks.

Scenario
Jo, a friend has decided to start a new business making and selling surf boards. Jo has recently left work at local leisure centre and has been looking at a copy of

the leisure centre accounts for the year to try and understand the sort of financial statements that a business needs to prepare. The leisure centre is a limited

company. Jo’s business will be set up as a sole trader.

Task 1
Write an explanation for Jo of the structure of the main financial statements and their purpose. Explain how they are prepared using accounting conventions and

international standards. Explain the differences between limited company accounts and those of a sole trader. Explain how Jo’s (manufacturing accounts) will differ

from those of the leisure centre. (Assessment Criteria 4.1, 4.2)

Task 2
Look at the financial statements of 2 Limited Companies below,. (Assessment Criteria 4.3)

Calculate the following financial ratios for each organisation:

f)    Return on capital employed
g)    Return on ordinary shareholders’ funds
h)    Gross profit margin
i)    Net profit margin
j)    Current ratio
k)    Liquidity ratio
l)    Average stock turnover
m)     Gearing

Summary Statements of Profit & Loss for the year Ended 31st March 2014

Jackson Ltd    Patel Ltd
£,000    £,000

Revenue            16966    20942
Cost of Sales            -7464    -10052
Gross Profit            9502    10890
Distribution Costs            -2436    -2966
Admin Expenses            -1806    -3316
Profit from Operations            5260    4608
Finance Costs            -320    -1040
Profit Before Tax            4940    3568
Tax            -1186    -856
Profit for the Year            3754    2712

Statements of Financial Position as at 31st March 2014

Assets
Non-Current Assets            13612    25158

Current Assets
Inventories            5062    4362
Trade & Other Receivables            2108    4618
Cash & Cash Equivilants            1656    10
8826    8990
Total Assets            22438    34148

Equity & Liabilities
Equity
Share Capital            4000    4000
Share Premium            2000    1000
Retained Earnings            8734    9994
Total Equity            14734    14994

Non-Current Liabilities
Bank Loans            4000    13000

Current Liabilities
Trade Payables            2518    4332
Bank Overdraft            0    966
Tax Liability            1186    856
3704    6154

Total Liabilities            7704    19154

Total Equity & Liabilities            22438    34148

Task 3
Using the ratios calculated above, write a report comparing the financial performance of the two organisations and commenting on profitability, efficiency and

financial position of the organisation. Make a recommendation about which company would be the better investment and explain why. Explain, in your report, the

limitations of ratio analysis and the implications for investment decision making. (Assessment Criteria 4.2, 4.3)

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