M004

MANAGERIAL FINANCE
COURSEWORK 2 (Individual Work)

FFS Limited is a limited company, whose head office in based in South Africa. The company has
been operation in the UK for the past 15 years. FFS provides financial services to a number of
organisations which include SME’s, property developers and investment property funds in the UK
and Africa. For the past 15 years, FFS has been a profit making firm as it has retained its previous
clients, in addition to capturing an increasing share of the market. However, the finance director
of FFS has recently got in touch with your professional consulting firm has engaged your firm
with the mandate to provide them with an explanation of the cash flow problem that FFS Limited
had been facing. The company is also dependent on the parent based in South Africa for and when
required.
In the past 2 weeks there has been a number of meetings in London and South Africa where it has
been agreed that FFS Limited should do its best to raise capital in England or Europe so as not to
depend so much on cash coming from the parent company all the time.
New Software
The current product that FFS Limited has to offer mostly to property developers and investment
funds companies is outdated. The company is looking to invest in a new product and there are two
proposals on offer. The details of these two proposals are outlined below.

Capital Suite is the first of two proposals, the expected life of this software will be 5 years and its
working capital requirements, the cost of the new software, expected revenue, components cost
and overheads are as follows; All of the above estimates have been prepared in terms of present
day costs and prices. Assume that the cash flow arise at the end of each period. In addition the
following information has been given:
• Revenues, overheads and working capital are expected to rise by 5% per year from year 1.
• The cost of component AK and component NK are expected to rise in line with inflation of the
6% per year from year 1.
• Each package of software will be sold at £5500.
• The costs of Specialist Technology Managers (STM), who have come from South Africa have
not been taken into consideration in the forecast and are as follows:
o STM 1: will be paid £250 per hour and expected number of hours for STM1 are 1,370. The rate
paid is expected to rise in line with inflation at 5% per year from year 2 and the number of hours
is expected to reduce by 3% per year, every year from year 2 onwards.
o STM2: will be paid £150 per hour and expected number of hours for SMT2 are 1,800. The rate
paid is expected to rise in line with inflation at 5% per year, every year from year 2 onwards.
If FFS Limited invests in Capital Suite then the discount rate that will be required to assess the
NPV would be 15%.
Capital Platform
Platform is the second of two proposals, the expected life of this software will also be 5 years and
its working capital requirements, the cost of the new software, expected revenue, components cost
and overheads are as follows:

All of the above estimates have been prepared in terms of present day costs and prices. Assume
that cash flows arise at the end of each period. In addition, you need to take the costs of Senior
Technology Managers, inflation and the rise in the revenue, overheads and working capital
consideration, which are the same for the Capital Suite. The selling price per package of the Capital
Platform is £5625. The discount will also be the same as with capital suite.
New Company Acquisition
FFS Limited is also considering to grow its operations across continental Europe, and at the
moment there are two potential target companies that can help FFS in creating a presence in
Europe, Madison Fund Holland and Ulendo Financial Services Spain. For the purpose of this
analysis, assume that the required investment funds can be sourced from parent company or FFS
can source these funds from other sources. It should be noted that FFS is only willing to acquire
only one of the companies. acquire only one of the companies. The data for the past three years
is given below:
Required:
Draft a report to the Finance Director of FFS Limited in which you:
(1) Provide an explanation on the different sources of funding the company can have and their
advantages and disadvantages and make recommendations as to how the company can manage the
same to help in the planned expansion program. [15 marks]
(2) Comment and provide recommendations on how efficient working capital management can
improve a firm’s cash flows? [10marks]
(3) Analyse the two Investment proposals by using NPV and provide recommendations. You
should also briefly comment on other investment proposal techniques that Madison may use, and
the limitations of using those techniques. If FFS limited has capital rationing problems where it
has only £6.5 million of funds available for the new investment, suggest which software the
company should opt for. [15 marks]
(4) You would also be required to explain how the company can use Break-even analysis as a tool
to aid them in making a decision as to which software to produce. You will be required to come
up with an example with your own numbers and draw up a break-even chart in explaining the same
[10 marks]
(5) What other factors may a firm take into account when making investment decisions? [10
marks]
(6) Based on the information provided and to the extent possible, perform ratio analysis and make
recommendations as to which company they should be looking to invest ¡n. What other
information will help you in making an informed decision on ratio analysis. [10 marks]
(7) Presentation of your work – Week 10 (summary – key is the NPV computation and decisions
made) (10 marks)
Clearly state any assumptions that you make
This is individual coursework which contributes 60% to the overall module mark.
Style and Format Style:
Report Font size: 12 (preferably Arial)
Line spacing: 1.5 lines
References: Harvard style
Learning outcomes being assessed:
1. Understand the different sources of funding/ finance.
2. Making use of different appraisal techniques and ratio analysis in making Investment decisions.
Assessment criteria
(1) Detailed explanation of sources of finance with academic reference 15%
(2) Efficient working capital management 10%
(3) Investment appraisal 15%
(4) Breakeven analysis 10 %
(5) Other factors to consider when making investment decisions 10%
(6) Ratio analysis 10%
(7) Evidence of academic research 10%
(8) Clear conclusion of the paper 5%
(9) Presentation (week 10) 10%
(10) Professional format 5%
PLAGIARISM WARNING! —Assignments should not be copied in part or in whole from any
other source, except for any marked up quotations, that clearly distinguish what has been quoted
from your own work. All references used must be given, and the specific page number used should
also be given for any direct quotations, which should be in inverted commas. Students found
copying from the Internet or other sources will get zero marks and may be excluded from the
university.
Word Count – Any work submitted with more than 2200 words will be have 10 marks deducted.