BAM4013 Financial Decision Making in Business – Assignment Brief

Assignment Overview

This assignment is about Financial Decision Making in Business. It looks at areas like investment appraisal, financial statement analysis, break-even analysis and sources of finance. Students need to show they can analyze, calculate and evaluate information by applying financial techniques and business concepts to real-life scenarios.

Assignment Information

Question 1 – Investment Appraisal Techniques

Scenario

Robert Company Ltd is looking at two investment projects. The Finance Director thinks they should choose the project with the Net Present Value but the Managing Director is not sure about this because both projects will last for the same amount of time.

The companys cost of capital is 10%. They will use the following to assess the projects:

• Net Present Value
• Payback Period

Project Cash Flows

Required Tasks

Part A

1. Calculate the Net Present Value
   Calculate the Net Present Value for both Project A and Project B using a 10% discount rate.
   Marks: 3
   
   
2. Calculate the Payback Period
   Find out how long it will take for each project to pay back the investment.
   Marks: 3
   
3. Explain the Results
   Compare. Interpret the results from the Net Present Value and Payback Period calculations.
   Marks: 3
   
   
4. Evaluate Investment Appraisal Methods
   Compare the advantages of Net Present Value with the Payback Period method. Explain why the Finance Directors view might be better.
   Marks: 6

Part B – Multiple Choice Questions

1. What is the difference between cash coming and cash going out?
   a) Money from sales and money spent on expenses and assets
   b) Money from buying assets and expenses
   c) Buying and paying for assets and expenses
   Marks: 3
2. Why is the Net Present Value method better than other appraisal techniques?
   a) It takes into account the time value of money
   b) It only looks at payback cash flows
   c) It reduces shareholder wealth
   Marks: 2
   
3. What is the decision rule for Net Present Value?
   a) If Net Present Value is zero the project breaks
   b) If the payback period is zero the project breaks even
   c) If Net Present Value is negative and payback is positive the project is
   Marks: 2
4.  A capital investment project means spending money now to get benefits later.
   a)
   b) False
   Marks: 3

Question 2 – Financial Statement and Ratio Analysis

Businesses use financial statements and ratio analysis to see how well they are doing find strengths and weaknesses and make financial decisions.

Here is the income statement for

Carl Company Ltd

Table 2 – Statement of Financial Position

Required Tasks

Part A – Multiple Choice Questions

1. What does an income statement show?
   a) How well a business is doing
   b) Sales projections
   c) Business value
   Marks: 2
2. What is taken away from revenue to calculate gross profit?
   a) Expenses
   b) Expenses and cost of sales
   c) Cost of sales
   Marks: 3
3. Which type of business has to publish an income statement?
   a) Partnership
   b) Sole trader
   c) Limited company
   Marks: 2
4. What`s the formula for the current ratio?
   a) (Current Assets – Inventory) / Current Liabilities
   b) Current Assets / Current Liabilities
   c) Cost of Sales / Average Inventory
   Marks: 3

Part B – Ratio Calculations

a) Calculate the Following Ratios for 2021. 2022

Students must show all their work.

Profitability Ratios

• Gross Profit Margin
• Net Profit Margin

Liquidity Ratios

• Current Ratio
• Quick Ratio

Efficiency Ratios

• Receivables Collection Period
• Payables Payment Period

Marks: 12

b) Evaluate Financial Performance Trends

Compare. Analyze the ratio results for 2021 and 2022 and discuss the companys financial performance.

Marks: 3

Question 3 – Break- Analysis

Scenario

Mehedi Company Ltd uses break-even and Cost-Volume-Profit analysis to make short-term decisions and improve profitability.

Part A – Multiple Choice Questions

1. What is the break- point?
   a) The point where a business makes a profit
   b) The point where a business makes a loss
   c) The point where revenue equals total costs
   Marks: 2
   
2. What formula calculates the break- point?
   a) Variable Costs ÷ (Selling Price − Fixed Costs)
   b) Fixed Costs ÷ (Selling Price − Variable Costs)
   c) Selling Price ÷ (Fixed Costs − Variable Costs)
   Marks: 3
3. If fixed costs are £21,000 selling price is £7 and variable cost is £4 per unit what is the break-even point?
   a) 7,000 units
   b) 4,000 units
   c) 4,500 units
   Marks: 3
4. What does the margin of safety show?
   a) How much sales exceed break- sales
   b) Sales required to break even
   c) Maximum sales possible
   Marks: 2

Part B – Break-even Calculations

Table 4 – Product Data

a) Calculate Break-even Point

Calculate the break-even point in units for both products.

Marks: 6

b) Calculate Margin of Safety

Calculate the margin of safety for both products.

Marks: 5

c) Evaluate Break- Analysis

Discuss the advantages and disadvantages of break-even analysis in business decision-making.

Marks: 4

Question 4 – Sources of Finance and Business Growth

Scenario

Mediterranean Ltd and Oceanic Ltd are in the hospitality industry. Are considering different ways to finance a potential merger.

Part A

a) Distinguish Between Merger and Acquisition

Explain the difference between mergers and acquisitions with examples.

Marks: 7

b) Sources of Finance

Discuss. Categorize the main short-term and long-term sources of finance available to the companies.

Examples include:

Long-Term Finance

• Bank loans
• Share capital
• Debentures
• Venture capital
• Short-Term Finance
• Trade credit
• Bank overdraft
• Factoring
• Short-term loans

Students should critically evaluate each option with examples.

Marks: 8

Part B – Multiple Choice Questions

1) What is the purpose of a cash budget?

1. To forecast cash receipts and payments
2. To calculate profit or loss
3. To determine business value

Marks: 2

2) What is business expansion?

1. Selling part of a business
2. Changing suppliers
3. Increasing business operations and scale

Marks: 2

3) Which growth method helps a business keep its identity and values?

1. growth
2. Merger
3. Acquisition

Marks: 2

4) Which of the following is a method of growth?

1. Acquisition
2. Merger
3. Franchising

Marks: 2

5) What happens when more cash leaves a business than enters it?

1. Cash surplus
2. Increased sales
3. Cash deficit

Marks: 2

Ratio Formula Sheet

Profitability Ratios

Gross Profit Margin

Gross Profit Margin=Gross Profit×100Revenue ext{Gross Profit Margin} = frac{ ext{Gross Profit} imes 100}{ ext{Revenue}}Gross Profit Margin=RevenueGross Profit×100

Operating Profit Margin

Operating Profit Margin=Operating Profit×100Revenue ext{Operating Profit Margin} = frac{ ext{Operating Profit} imes 100}{ ext{Revenue}}Operating Profit Margin=RevenueOperating Profit×100

Return on Equity

Return on Equity=Net Profit×100Total Equity ext{Return on Equity} = frac{ ext{Net Profit} imes 100}{ ext{Total Equity}}Return on Equity=Total EquityNet Profit×100

Return on Capital Employed (ROCE)

ROCE=Operating Profit×100Equity + Non-Current Liabilities ext{ROCE} = frac{ ext{Operating Profit} imes 100}{ ext{Equity + Non ext{-}Current Liabilities}}ROCE=Equity + Non-Current LiabilitiesOperating Profit×100

Liquidity Ratios

Current Ratio

Current Ratio=Current AssetsCurrent Liabilities ext{Current Ratio} = frac{ ext{Current Assets}}{ ext{Current Liabilities}}Current Ratio=Current LiabilitiesCurrent Assets

Quick Ratio (Acid Test)

Quick Ratio=Current Assets - InventoryCurrent Liabilities ext{Quick Ratio} = frac{ ext{Current Assets - Inventory}}{ ext{Current Liabilities}}Quick Ratio=Current LiabilitiesCurrent Assets - Inventory

Efficiency Ratios

Inventory Holding Period

Inventory Holding Period=Inventory×365Cost of Sales ext{Inventory Holding Period} = frac{ ext{Inventory} imes 365}{ ext{Cost of Sales}}Inventory Holding Period=Cost of SalesInventory×365

Receivables Collection Period

Receivables Collection Period=Receivables×365Revenue ext{Receivables Collection Period} = frac{ ext{Receivables} imes 365}{ ext{Revenue}}Receivables Collection Period=RevenueReceivables×365

Payables Payment Period

Payables Payment Period=Trade Payables×365Cost of Sales ext{Payables Payment Period} = frac{ ext{Trade Payables} imes 365}{ ext{Cost of Sales}}Payables Payment Period=Cost of SalesTrade Payables×365

This assignment helps students understand decision-making techniques used in business. Students need to show they can apply techniques and business concepts to real-life scenarios and demonstrate critical thinking and professional presentation skills.