This is a solution of your Managing Financial Resources Decisions Assignment that describes about Developing business

Managing Financial Resources Decisions Assignment

Learning Outcome 

Learning Outcome

Assessment CriteriaIn this assessment you will have the opportunity to present evidence that shows you are able to:
LO1
LO2
Understand the sources of finance available to a business

 

 

Understand the

implications of finance

as a resource within a

business

1.1Identify the research of project available to a business
1.2Assess the implications of the different sources
1.3Evaluate appropriate sources of finance for a business strategy
2.1Analyse the costs of different sources of finance
2.2Explain the importance of financial planning
2.3Assess the information needs of different decision makers
2.4Explain the impact of finance on the financial statements
LO3

 

Be able to make financial decisions based on financial information3.1Analyse budgets and make appropriate decisions.
3.2Explain the calculation of unit costs and make pricing decisions using relevant information.
3.3Assess the viability of a project using

investment appraisal techniques.

LO4

 

Be able to evaluate the financial performance of a business.4.1Discuss the main financial statements.

 

4.2Compare appropriate formats of financial statements for different types of business.
4.3

 

Interpret financial statements using appropriate ratios and comparisons, both internal and external.
Purpose of this assignment

This unit is designed to give learners a broad understanding of the sources and availability of finance for a business management. Learners will learn how to evaluate these different sources and compare how they are used. They will learn how financial information is recorded and how to use this information to make decisions for example in planning and budgeting.  Decisions relating to pricing and investment appraisal are also considered within the unit. Finally, learners will learn and apply techniques used to evaluate financial performance. (Pearson Education Limited).

Scenario

There are various scenarios throughout the paper.

Task 1

This tasks offers you an opportunity to achieve L.O. 1: 1.1, 1.2, 1.3

Task 1.1

You have an on-going small to medium sized entreprise (known as an SME) which you have decided to expand.  In order to do this, you will need to consider the amount of investment required to achieve this.   Provide a description of your business including your expansion plan and the possible sources of funding/financing that might be suitable to enable this expansion.

Guidelines: In order to complete the above task, your answer should include the following:

·         A description of your business.

For Example: I have a retail children’s clothing shop in Peckham, I started it 10 years ago, I have a £250,000 turnover per year and retained profits of £100,000 and £500,000 of assets in the business. I employ 2 people and now want to start another business in Streatham as there is population density and many young families. I am going to appoint one of my staff who has been with me for 8 years as the manager of that business, I will appoint my other staff member who has been with me 6 years as the assistant manager of this business and I will work between the two. I will need to prepare a business plan in case I need to borrow money.

·         An indication of how much money/investment you would need.

For Example: The shop on Streatham High Street has a retail floor space of 30’ x 25’ (750 sq. ft.).  The rent is £20,000/year which is fixed for the first 5 years; I will need to spend £30,000 on fixtures and fittings, and stock of £25,000.  I think monthly sales will be initially £6,000.  I think this will drastically increase after the first year because I have a differentiating factor in the products and service that I will provide.  I am going to call the shop Tough Tots.  All stock will be supplied by existing suppliers and the full time Manager will cost me £25,000 per year etc.  So the expansion will require an investment of £XX for the first two years.

 a)    A discussion of the possible sources of finance available to a business.

Task 1.2

a)   Assess the implications of the sources of finance (identified above) to your business.

b)   Discuss why an issue of shares on the Stock Exchange would not be a suitable option for this business.

Guidelines:In order to complete the above task, your answer should:

a)    Assess the effects of the identified sources of finance (which you identified in task 1.1)on control and on the risk of bankruptcy for the business

b)   Discuss why a company listed on the London Stock Exchange is different to your business.

Task 1.3

Highlight the advantages and disadvantages of the different sources of finance that are suitable for your particular business.

 Guidelines:In order to complete the above task, your answer should:

a)    List the advantages and disadvantages of different sources of finance that you consider suitable for your chosen business.

Completion Dates:

Task 2

This tasks offers you an opportunity to achieveLO2: 2.1, 2.2, 2.3, 2.4

Task 2.1

 Select three sources of finance that are the most suitable for your business expansion project and explain why they are the most suitable. Also analyse the financial costs of these sources of finance to the business.

Guidelines: In order to complete the above task, your answer should:

a)    From the sources of finance identified, choose at least 3 different sources that are suitable to your business, and justify your selection.

b)   Discuss the costs of the different types of finance available to the business. e.g. interest, dividends etc.

Task 2.2

You are working as a Bank Manager and you are approached by a long standing customer of the bank, Mr R. Smith, who wants to apply for a business loan. Prepare a letter to Mr R Smith explaining why financial planning is important for him to get such loans and more importantly, for the success of his or any other business.

Guidelines:In order to complete the above task, your answer should:

a)    Explain what is meant by ‘financial planning’.

b)   Explain why the process of financial planning is important to the success of a business.

c)    Prepare it in a comprehensive business letter format.

 Task 2.3

Assess the different information needs of the internal and external decision makers of a business organisation.

 Guidelines:In order to complete the above task, your answer should:

a)    Identify the different decision makers related to a business environment.

b)   Assess the different information needs of these decision makers.

Task 2.4

Explain how the getting of loans and investments (that is the purchase of ordinary shares not the selling of shares) impacts the balance sheet and income statement.

Guidelines: In order to complete the above task, your answer should:

a)    You need to consider how the above (loans and investments) would affect the P&L Account and the effect they may have on the assets and/or liabilities in the Balance Sheet.

Completion date:

Task 3

This tasks offers you an opportunity to achieveLO3: 3.1, 3.2, 3.3

Task 3.1

You are a business consultant and you have been asked by Coopers Garage to prepare a cash budget for the four months ending April 2015. The manager of Coopers has provided the following details:

1.     The Bank Balance will be £75,000.

2.     Total monthly sales for the four month period ending April  are forecasted as

£

Jan                                108,000

Feb                               112,000

March                           96,000

April                           128,000

3.         Cash purchases during the relevant period are

£

Jan                                  32,000

Feb                                 22,000

March                            64,000

April                               52,000

4.         Monthly Salaries of £8,000 have to be paid.

5.         Coopers Garage pay rent of £18,000 per month quarterly in advance. Payments are due on 1st             January, 1st April etc.

6.         A new supplier has offered Coopers Garage two months credit starting Jan , this means that materials bought on credit in January will be paid for in March and so on. Coopers Garage plan to make the following credit purchases from this supplier;

£

Jan                             16,000

Feb                             24,000

March                        26,000

April                           18,000

7.         Other expenses are forecasted as follows: (these will be paid in the month in which they are incurred).

£

Jan                               12,000

Feb                               14,000

March                          20,000

April                             28,000

8.         Coopers Garage will be repaying a Bank Loan at the rate of £3,000 per month. The last instalment is             due in May.

Prepare the Cash Budget for the four months ending April 2015, and identify whether the business has a surplus or a deficit, and if it has a surplus, suggest two ways in which it could utilise this.  Take into consideration amount of surplus and how much may be needed for future cash-flows.

 Guidelines: In order to complete the above task,

a)    You need to prepare a Cash Budget working out whether the organisation has a cash surplus or a cash deficit at the end of the 4 month period

b)    explain how the business would react to this. 

 Task 3.2

 Seville Suits makes high quality ‘executive’ bespoke suits.

Each year at its factory, it makes 3,000 suits and the costs for 3,000 suits are as follows:

Direct materials (£100 per suit)         £300,000

Direct labour (£120 per suit)            £360,000

Total Direct Cost                               £660,000

Fixed Cost                                          £240,000

Total Cost                                           £900,000

The company is currently reviewing its selling prices and is considering cost-plus pricing based on:

Either a 33.33 % mark-up on cost price (i.e. profit is 33.33 per cent of cost price)

Or a 15 % return on capital employed.

It will choose the method that provides the highest return.

Seville Suits has capital employed of £1,500,000.

Calculate the unit price based on both costing methods, and select the price you think is most appropriate and explain why you think it is the appropriate price.

You may round up your figures to nearest £1 when calculating your answers.

 Guidelines: In order to complete the above task, your answer should:

a)    Calculate the unit cost of producing one suit using 33% mark up, and then calculate the cost of producing one suit based on mark-up being 15% return on capital employed.

Read more about : Business Decision Making Assignment

b)   Select which price you think is the most suitable and explain why.

Task  3.3

Italian Ice Cream Parlour is considering two business investment opportunities but only one can be selected.  The following information is provided:

                                                Business A                   Business B

(Year 0) Initial Cost            £100, 000                    £150 000

Net cash-in-flows:

Year

1                             £35,000                         £30,000

2                             £35,000                         £45,000

3                             £40,000                         £75,000

4                             £50,000                         £75,000

The estimated cost of capital is 10% per annum. Assuming that will not have any residual value at the end of the 4 years.

Note –The discount factor are as follows:

Year 1 = 0.909

Year 2 = 0.826

Year 3 = 0.751

Year 4 = 0.683

To assist Italian Ice Creams to make a decision, you are to calculate the following for both projects:

•           Payback period

•           The Accounting Rate of Return(ARR)

•           The Net Present Value (NPV)

In your opinion which project should Italian Ice Creams undertake, and why.

Guidelines: In order to complete this task, your answer should:

a)    Calculate the NPV, Payback method and the ARR using the above figures for both projects

b)   Select the most suitable project and explain why you’ve selected it.

Completion Dates:

Task 4

This tasks offers you an opportunity to achieve LO4: 4.1, 4.2, 4.3

 Tasks 4.1 & 4.2

Discuss the purpose of the main types of financial statements produced by businesses, and discuss the main differences in the formats of financial statements of different business organisations.

Guidelines:In order to complete this task, your answer should:

a)    Explain the purpose of the Trading Profit and Loss Account (or Income Statement) and the Balance Sheet.(4.1)

b)   Explain how similar information can be presented differently in different business organisations. (4.2)

Tasks 4.3

 Your business XYZ Ltd runs  a  chain  of  small  shops  and  you have just  received the  following  extracts from  the  audited  accounts  for  the  period  ended 30thSeptember.

PROFIT AND LOSS ACCOUNT FOR THE PERIOD ENDED 30th SEPT

£ 000  £000

Sales                       1,200

Cost of goods sold      (450)

Gross Profit                750

Wages 300

Other Expenses          70

(370)

Net Profit                    380

STATEMENT OF FINANCIAL POSITION AS AT 30 SEPT (Balance Sheet)

 £000   £000

Fixed Assets                1050

Current Assets

Stock                                     350

Debtors           140

Bank    260     

 750

Total Assets                1,750

Financed by:

Equity an

Learning Outcome
Learning Outcome Assessment Criteria In this assessment you will have the opportunity to present evidence that shows you are able to: Task no.
Evidence
(page no)

LO1

Be able to use a variety of sources for the collection of data, both primary and secondary. 1.1 Create a plan for the collection of primary and secondary data for a given business problem. 1
1.2 Present the survey methodology and sampling frame used. 1
1.3 Design a questionnaire for a given business problem. 1
LO2 Understand a range of techniques to analyse data effectively for business purposes 2.1 Create information for decision making by summarising data using representative values 2
2.2 Analyse the results to draw valid conclusions in a business context 2
2.3 Analyse data using measures of dispersion to inform a given business scenario 2
2.4 Explain how quartiles, percentiles and the correlation coefficient are used to draw useful conclusions in a business context 2
LO3
Be able to produce information in appropriate formats for decision making in an organisational context
3.1 Produce graphs using spreadsheets and draw valid conclusions based on the information derived. 3
3.2 Create trend lines in spreadsheet graphs to assist in forecasting for specified business information. 3
3.3 Prepare a business presentation using suitable software and techniques to disseminate information effectively. 3
3.4 Produce a formal business report. 1
LO4
Be able to use software- generated information to make decisions in an organisation. 4.1 Use appropriate information processing tools. 4
4.2 Prepare a project plan for an activity and determine the critical path. 4
4.3
Use financial tools for decision-making. 4

d Liabilities

Share Capital                                               900

Retained Profits                                           250

Total                                                            1,150

Non-Current Liabilities                              150

 

Current Liabilities:

Creditors                                                     450

Total Liabilities                                           600

Total Equity and Liabilities                          1,750

 

Required:

(a)  Calculate the following accounting ratios for XYZ Ltd:

•           Current ratio

•           Acid test ratio

•           Return on capital employed (ROCE)

•           Gross profit margin

•           Net profit margin

 

For each ratio, include the formula in words and show your workings.  In addition, explain what each ratio measures.

 Guidelines: In order to complete the task you should:

a)    Calculate and interpret the relevant financial ratios based on the information given in the financial statements.

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