CF Assignment April 2011 | Knowledge | Cost Of Capital

London School of Business & Finance (LSBF

)
Module Assignment Type Word Limit Weighting Student Cohort Issue Date Submission Date Feedback Date Issued by (Assessor) Internal Verifier Plagiarism

MSC /MBA Finance

Corporate Finance
Written Report 2500+-10% 50 % Intake 6 2 March 2011 12 April 2011

Augustine Entonu Dave Marshall When submitting work for assessment, students should be aware of the LSBF guidance and regulations in concerning plagiarism. All submissions should be your own, original work. You must submit an electronic copy of your work. Your submission will be electronically checked.

Harvard Referencing Learning Outcomes

The Harvard Referencing System must be used. The Wikipedia website must not be referenced in your work. On successful completion of this assignment you will be able to: Knowledge 1 Identify principles and trends in the corporate finance. 2 Determine and evaluate the nature of different source of finance. 3 Demonstrate deep and systemic knowledge in the sphere of corporate finance development. Thinking skills 4 Critically evaluate the economic benefit of various types of finance 5 Reflect on the roles, skills and responsibilities needed for effective management of corporate finance. 6 Discuss in context the linkage between current theory and practice and be able to organise appropriate evidence and reasoning to produce a balanced conclusion 7 Demonstrate problem solving and analytical approaches to facilitate effective financial decision-making Subject-based practical skills 8 Demonstrate effective approaches to analyzing corporate finance structure

Insurance costs per annum are £3 million. of which £2 million per year is due directly to the theme park project and Insurance cost will increase in line with the Consumer price i. it is expected that the average visitor will spend £10 on food and drinks. The price of admission to the theme park is expected to be £25 per adult and £15 per child. Operation costs (excluding labour (please see below) are expected to be £17 million in the first year of operation.000 visitors per day for at least five years 2. 3. at an appropriate level including the acknowledgement and referencing of sources and also capacity for independent and self managed learning 11 Contextualise the knowledge. The theme park would cost a total of £500 million and could be constructed and working after 1 year of investment . 70% of visitors are forecast to be children. make decisions in complex and unpredictable context of using rational decision-making approach Skills for life and work (general skills) 10 Present information and communicate effectively in written or oral form. increasing by 5% per year. and half in one year’s time without the effect of inflation due to a signed agreement. The company expects revenue to rise by 6% from current on a compound bases 5. 4. competencies and practical skills from the module and apply this to the real world project contexts and activities Grading Criteria Your Task Please see separate Assignment Grading Criteria Autumn 2011 sheet for this Assignment. In addition to admission revenues. Wonderland Confectionaries Inc.000 on market research into the theme park. 8. 7. The non-current asset has an after tax realisable value between £100 million and £200 million after five years of the project. The following details apply: 1. The theme park would have a mixture of family activities and thrills. In addition working capital of £60 million will be required from the beginning of the project and is expected to increase year on year in line with the inflation factor of the revenue (6%) 6.9 Possess the ability to plan and implement tasks at professional level.Half of the £500 million would be payable immediately. 6% per annum . Wonderland has just spent £400. All costs and receipts (excluding maintenance and construction costs and the realisable value) are shown at current prices. and is encouraged by the findings.e. The theme park is expected to attract an average of 20. owns a successful chain of Restaurants and the company is considering diversifying its activities by investing in theme park business through the construction of a theme park.

your team has been able to gather the following information: a) Wonderland can procure a loan of £100 million loan at 8% fixed rate to provide the necessary finance for the theme park.710 Current assets 630 Less current liabilities (570) 1. ALICE LIMITED. and tax is paid in the year it is incurred. f) Wonderland’s market weighted gearing if the theme park project is undertaken is estimated to be 80% equity and 20% debt.5%. labour cost will be increased by 7% each year on compounding basis and the project would require 1000 employees with a cost of £35 million per annum (at current prices).770 Financed by: £1 ordinary shares 500 Reserves 700 1200 Medium and long term debt 570 1. you have investigated the current risk and financial structure of its closest theme park competitor. The Theme park will be operated 7 days a week for 365 days a year and will be maintained during the night.770 After carrying out preliminary search for financing and investigating the industry further.50 The expected return and the risk free rate are all nominal and as such any cost of capital derived will be a nominal cost of capital REQUIRED: You are required to prepare a report analysing whether or not Wonderland should undertake the investment in the theme park. c) Corporate tax is at a rate of 35% and this is applicable for both Alice and Wonderland d) The expected market return on equity is 12% and the risk free rate 3. and of Alice 400 pence. You have decided to take an initiative and include in your report a brief outline of the use of real options in project appraisal for management and as such will prepare an outline on the following options and how they may be applicable to the Wonderland . h) The current share price of Wonderland is 200 pence. Details are summarised below.80. 11. Alice Limited. g) Wonderland’s equity beta is 0.compounded annually 9. e) Wonderland’s current weighted average cost of capital is 9%. However as part of the finance team. (20 marks) 3. 10. SUMMARISED BALANCE SHEET £m Non-current assets (net) 1. Wonderland has no previous experience of theme park management. i) Alice’s equity beta is 1. Your report should cover the following areas which have been indicated in your firm’s investment manual: 1. The dual use of existing advertising campaigns restaurant theme park will save a £3 million per year in advertising expenses. A suggestion of financial and non-financial issues that the management of Wonderland need to be aware of and suggestions on how to manage these issues. Net present value and any relevant advice to management on salient issues to be considered (60 marks) 2. b) £300 million of the investment will attract 20% per year capital allowances on straight line basis while the remainder will not.

but incompletely referenced C 50 – 59% . all properly referenced Uses appropriate conceptual frameworks Attempts analysis but includes some errors and/or omissions Shows awareness of issues but no more than to be expected from attendance at classes Arguments reasonably clear but underdeveloped Insufficient evidence of independent research Insufficient evaluation of source material Some good use of relevant data and examples. all properly referenced Distinction 70% and above B 60 .theme park project under appraisal • Abandonment • Expansion • Flexibility • Selling • And any other relevant option (20 marks) Guidelines Indicative Grade UK % Marks Characteristics A 70%+ Very high standard of critical analysis using appropriate conceptual frameworks Excellent understanding and exposition of relevant issues Clearly structured and logically developed arguments Good awareness of nuances and complexities Substantial evidence of well-executed independent research Excellent evaluation and synthesis of source material Excellent use of relevant data and examples.69% High standard of critical analysis using appropriate conceptual frameworks Clear awareness and exposition of relevant issues Clearly structured and logically developed argument Awareness of nuances and complexities Evidence of independent research Good evaluation and synthesis of source material Good use of relevant data and examples.

sources and examples and poorly referenced UOW Pass Mark = 40% E 30 – 39% Weak understanding of appropriate conceptual frameworks Weak analysis and several errors and omissions Establishes a few relevant points but superficial and confused exposition of issues No evidence of independent research and poor understanding of class notes Poor or no use of relevant data.D 40 – 49% Adequate understanding of appropriate conceptual frameworks Answer too descriptive and/or any attempt at analysis is superficial. sources. and no references Very weak or no understanding of appropriate conceptual frameworks Very weak or no grasp of analysis and many errors and omissions Very little or no understanding of the issues raised by the question No appropriate references to data. containing errors and/or omissions Shows limited awareness of issues but also some confusion Arguments not particularly clear Limited evidence of independent research and reliance on a superficial repeat of class notes Relatively superficial use of relevant data.com/ for you to view and print off at a type size more convenient to you. . examples or even class notes F 0 – 29% Note This Assignment Briefing Sheet Autumn 2011 is available on http://docs. sources and examples.google.

Feedback should help you plan and execute work as well as understand how your mark was arrived at. informed by the criteria The feedback you receive should help you to understand your overall level of performance for the assessment. Marks are arrived at through markers’ holistic judgement. General comments and advice on how to improve your work in the future Text .LSBF Postgraduate Assessment Feedback Sheet Date of Assessment Student Name Course Unit Title / Code Type of Assessment Name of Student Student ID Text Course Unit Level Date Type of Assessment AA 000000 Course and College 7 Assignment / Project Title □ Staff Assessment □ Self Assessment □ Peer Assessment □ Formative □ Summative Text Course College Text The feedback you are given will be informed by each of the marking criteria overleaf.

able to deal with complex issues both systematically and creatively. perhaps in an individually distinctive way 5 Technical Competence Skills to enable the execution of ideas appropriate to the medium 0–29% Execution shows very limited command of techniques and poor judgement 30–39% Techniques are limited or rudimentary in selection or skill 40-49% Skills are adequate to communicate ideas. Little or no awareness of personal strengths and weaknesses in relation to task 40-49% Evidence that reflection and planning have led to increased subject engagement and commitment. processes or knowledge to the field or is ground breaking in a way that would be recognized as valid by experts in the field 3 Subject Knowledge Understanding and application of subject knowledge and underlying principles 0–29% Inaccurate and/or incomplete knowledge of the subject field and its development 30–39% Fragmentary and/or partial knowledge of the subject and its development 40-49% Evidence of understanding key aspects of the subject context. behaviour may be unsupportive of others 40-49% Awareness of main standards required of relevant profession. awareness and adoption of appropriate conventions. and sound judgments 2 Analysis Examination and interpretation of resources 0–29% Little or no evidence of analytical engagement 30–39% Judgments (with or without complete data) are not sound. Incomplete awareness of personal strengths and weaknesses 40-49% Conventions and standards are applied. Technical Skills may have contributed to conceptual advances 6 Communication and Presentation Clarity of purpose. supported by extensive evidence 70+% Evidence of strong sense of motivation and commitment to personal and professional development. some evidence of exploration of ideas and concepts 50-59% Decision making is based on sound judgement of available options. critiques are not well argued.London School of Business & Finance Postgraduate Marking Criteria Criteria Level of Achievement Indicators Fail 0–29% Little or no evidence of appropriate research Pass 40-49% Adequate research has been carried out and appropriate information has been gathered and documented from readily available sources applying standard techniques 1 Research Systematic identification and investigation of appropriate sources 30–39% Information presented does not relate sufficiently to the task. accepted conventions and procedures are usually applied 50-59% Skilled command of conventions and procedures. perhaps informed by related or external fields. there may be evidence of rudimentary research 50-59% Information is accurate and from a range of sources. accuracy. a consistently strong contributor to any team. in current debates and/or historical background. critiques are insightful and well substantiated. planning. self direction. experimentation and testing of ideas and materials in the realisation of concepts 0–29% Unable to identify problems. at the forefront of their field of study. and progresses the field. struggles to plan and complete work alone. approach consistently moves practice forwards 60-69% Discernment and judgement are evident. sensitivity to the needs of the audience 0–29% Ineffective use of visual/ oral/ written communication conventions in the production and presentation of ideas 30–39% Partial lack of awareness and observance of conventions and standards. Able work both collaboratively and independently 50-59% Shows self-direction and/or originality in tackling and solving problems. or with others 0–29% Shows little accurate knowledge of related profession. does not understand the purpose of risk taking or exploration of alternatives 30–39% Exploration of methods or concepts is not sufficient to resolve barriers and/or move practice forward 40-49% Operates within familiar and well established ideas. operates both autonomously and collaboratively as a professional. skills in the selected media. with evidence of some analysis and evaluation 60-69% Well informed judgements made of the relative value of connected information from a wide range of academic sources 70+% Extensive independent research. applies established techniques creatively in the discipline 70+% Risk taking shows a profound and precise understanding of the nature of the field. risk taking. consistently plans and implements tasks at a professional or equivalent level. used creatively 60-69% Effective decision making in complex and unpredictable situations. diverse audience needs are accounted for. is unproductive working alone. shows initiative and personal responsibility. conceptual development and the communication of ideas 70+% Idea and technique are unified. risk is managed appropriately. familiarity with the material. Technical skills facilitate practice. lack of awareness of audience 30–39% Evidence of reflection and planning for learning not consistently progressed. able to work effectively in diverse teams 60%60-69% Regularly shows selfdirection and originality in tackling and solving problems. able to propose original ideas or hypotheses 4 Experimentation Problem solving. Discernment and judgement are evident. demonstrates originality in tackling and solving problems. 50-59% Knowledge is accurate and current within the field. can plan and implement tasks at a professional or equivalent level. shows critical awareness of current problems 60-69% Judgements are astute and well supported. but may lack accurate interpretation and analysis 50-59% Uses examination and interpretation of sources to make sound judgments . autonomously or 70+% Makes sound decisions readily in complex and unpredictable situations. processes. does not collaborate effectively with others 30–39% Insufficient understanding of professional life. media and/or materials. response to complex issues is not systematic or creative 40-49% Key elements within relevant information are identified. information selection and organisation shows awareness of audience requirements and preferences 50-59% Able to communicate own conclusions and explain and summarise existing work clearly. Idea and technique are unified. subject engagement and commitment 0–29% Consistent lack of evidence of reflection or planning for learning. in appropriate media to specialist and non specialist audiences 60-69% Communication is persuasive and compelling. and to develop new skills to a high level 60-69% Takes full responsibility for own learning and development through iterative cycles of well articulated purposeful analysis and planning. in any role . offers new insights 60-69% Systematic and extensive knowledge. Breadth of techniques adopted may be a feature 70+% Evidence of analysis which potentially contributes new ideas. collaborates reluctantly. message and medium are unified with personal style 70+% Communication shows an exceptional and integrated understanding of the topic and audience needs 7 Personal and Professional Development Management of learning through reflection. structure is clear. Developing an awareness of strengths and weaknesses 50-59% Demonstrable capacity to continue to advance their knowledge and understanding. lack of clarity in structure selection and organisation of information. and applied appropriately 70+% Brings a valid individual understanding to concepts and knowledge in the field Where appropriate. explicitly and clearly communicated and evidenced 8 Collaborative and / or Independent Professional Working Demonstration of suitable behaviour for working in a professional context alone.

able to work effectively in diverse teams.collaboratively. in multiple roles .

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