Assessment Brief 7BSP1245 Finance for International Business

Module Title: Finance for International Business Module Code: 7BSP1245

Assignment Format & INDIVIDUAL Report, maximum Assignment
70%
Maximum Word count 2,000 words Weighting:
Time:23.30 Coursework return
Coursework Submission: Date:30th April 2021 Date returned to
May 30th 2021
Method: Canvas students:
Arthur
Dyirakumunda
Dr Nurgul
Module leader Arthur Dyirakumunda First marker Chambers,
Dr Edna Stan-
Maduka

Approved ☐
Internal Moderator Module Board name PG Board B
Date: January 2021
Approved ☐
External Examiner Module Board date
Date:

Assessment Criteria
Learning Outcomes: Knowledge and Understanding tested in this assignment:
1. evaluate strategies available to an organisation to enable the creation and maintenance of value;
2. assess the financing choices available to organisations and the relevance of capital structure;
3. analyse the financial and operating risks faced by organizations and the strategies for mitigating these
risks;
4. research the specific issues relating investing and raising finance on an international basis

Learning Outcomes: Skills and Attributes tested in this assignment:

5. analyse financial statements and interpret the results in the context of value creation;
6. critically evaluate capital investment proposals both domestic and international including estimation of
component and overall capital costs;
7. devise strategies for identifying and managing foreign exchange risk and the risks of international
investment;
8. devise financial strategies f or enhancing enterprise value.

Feedback /Marking criteria for this Assignment

Performance will be assessed using HBS Grading Criteria and Mark scheme.
Guidance for improvement will be given in writing on the Assessment Feedback Form or on the StudyNet Feedback
Form within 4 weeks of submission.
For each day or part day up to five days after the published deadline, coursework relating to modules submitted late
will have the numeric grade reduced by 10 grade points until or unless the numeric grade reaches 50 for level 7
(PG). If a submission is more than 5 working days after the published deadline, a grade of zero will be awarded.
Where the numeric grade awarded for the assessment is less than 50 for level 7, no lateness penalty will be applied;

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Detailed Brief for Individual/ Assessment

Assignment Title: Investment Appraisal Report

Description of the assignment:

Report testing an evaluation of international business finance decisions

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 7BSP1245 Finance for International Business
Coursework Brief

Wholesome Organic Foods plc. (t0 = 2021)

Wholesome Organic Foods was founded in 1980 when the founding family acquired an
organic farm in Kent. Demand for their wholesome organic food mushroomed and the
business expanded rapidly in the 1980's but remained a family business. It was restructured
as a limited company in 1990 and subsequently experienced rapid growth until 2001.

In that year the then directors decided that the business had reached the limit of
development in its present form. Future development required large-scale expansion in
order to compete with the cost base of non-organic food producers, which in turn needed
an injection of capital that the Founding family were unable to generate themselves The
conviction that there was much money to be made from “quality organic foods" had been
vindicated but the directors felt that it would be safer to look for other avenues for future
development.

They investigated several possibilities deciding eventually to expand production facilities

and establish their own packing/distribution system so that their newly 'branded' produce
could be sold by independent quality food retailers. Upon raising the necessary capital in
the name of Wholesome Organic Foods plc, they embarked upon a to date, successful
venture.

As the market grew and to keep abreast of new production technology, the directors agreed
to further update the plant and machinery. They financed updating of equipment and
premises by means of issuing debentures.

It is now April 2021 and the present directors of Wholesome Organic Foods plc believe that
the long-term success of the company lies in future diversification and expansion.

The newly appointed finance director, agrees with this opinion but insists that the company
must first appraise its own current position and if necessary, make changes to strengthen its
existing financial situation before embarking on new plans. He is particularly concerned that
the company should preserve adequate liquidity and finance its assets in a beneficial
manner. Members of the founding family still retain 30% of Wholesome Organic Foods
equity and other long-standing directors own a further 25%; a change of control is unlikely
to be welcome.

During the last year, the company has updated production and distribution assets and, in
what has been a difficult year, has been able to maintain sales and profit growth (see
Wholesome Organic Foods plc accounts in Appendix 1). There has been a great deal of
uncertainty about world economic growth and stock markets have been extremely volatile

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resulting in the firm’s ordinary shares trading below their level of one year ago although the
preference shares have made some progress, increasing by 15p during the year.
Ordinary share dividends have achieved an average growth rate of 5% per annum over the
past five years and this rate is expected to be maintained in the future.

The present market prices for Wholesome Organic Foods plc shares and debentures are:

£1 Ordinary shares £1.85 ex div

£2, 5% Preference shares £2.55 ex div
7% Debentures 2025 £108.65 ex interest

Any new venture would be expected to achieve a return on capital employed in line with
that experienced recently by Wholesome Organic Foods. The finance director favours a
payback period of 5 years. Wholesome Organic Foods would therefore need to agree a
realistic acquisition price for such a new venture and its future cash flows in order to
determine whether these criteria could be met.

Although several investment projects are being considered the main proposal currently
being investigated offers an expansion of the “produce” component of the UK firm’s
activities, but with an additional element providing further diversification into the Spanish
organic food retail market. Wholesome Organic Foods finance director has already
calculated the trends in the financial ratios of the Bonita Foods SL, an unquoted Spanish
company, from its unaudited annual accounts (see Appendix 2) and has concluded that the
proposal is now worthy of further investigation.

Bonita Foods SL is a thriving family-owned venture requiring further capital to expand its
network of organic food shops in Spain. The existing owners feel that the firm’s future lies in
establishing wider European links and the retirement of senior family members, leaving the
younger members active in the management of the firm. They are therefore considering
selling all the shares to a suitable company at the end of 2021. The firm has been
established for 45 years and is well respected in business circles. The average age of its fixed
tangible assets is 3 years and depreciation is charged at 10% on cost each year.

The firm’s nominal share capital is €550,000 and the directors have indicated that they
would require a premium of 100%. As the firm is at present family owned and run, there is
no available price/earnings ratio. P/E ratios for the only two publicly owned companies in
the same business sector, Senza Foods SL and Garcia Organic SL, are 12 and 8 times
respectively. Garcia Organic SL had grown at a similar rate to Bonita Foods SL.

The acquisition of Bonita Foods SL retail outlets currently being investigated offers an
expansion of the firm’s activities into exporting, but with an additional element providing
further diversification for the company. Wholesome Organic Foods finance director has
already calculated the trends in the Spanish retail sector and has concluded that the
proposal is now worthy of further investigation. However, as this is Wholesome Organic

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Foods first venture into overseas markets, the directors are concerned about foreign
exchange exposure. Wholesome Organic Foods is interested not only in extending the range
of its produce but particularly in the possibility of diversifying into the retail trade. While
aware of the existence of many competitors, the directors feel that there is a ready market
in Spain for their established name and product.

The finance director has provided an expected profit forecast (under normal weather
conditions-Base Case 1 probability 55%) for the first five years of the Bonita Foods SL
project. The projected figures are, like the UK Company’s, subject to alteration if weather
conditions vary. Sales are expected to be €900k in 2022 and grow at 15% per annum to
2026. Total variable costs (of which 40% is labour cost) are expected to be €495k in 2022.
Labour costs will increase by 9% per annum and other variable costs by 6% per annum.
There will also be fixed costs of €180k in 2022 which will increase by 5% per annum.

Under best case scenario probability 30% net cash flows will be 1.15 times base case.
Under worst case scenario probability 15% net cash flows will be 0.70 times base case

The beta of Wholesome Organic Foods plc is believed to be 1.7, the rate of return on 5yr UK
government bonds is 0.25% and the FTSE all-share index return for the last year is 5.25%.
The corporation tax rate in Spain is 25% and UK corporation tax is currently 21%. Both are
payable at the end of the accounting year in question (you may assume for the purpose of
this case that accounting profit and taxable profit are identical.)

There would be no restriction on the transfer of Profits/cash flows to the UK. It is considered
possible that, as the Spanish economy develops further, even higher wages than those
forecasts may be demanded by the workforce.

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Required:

Evaluate the Bonita Foods SL investment project on behalf of Wholesome Organic Foods plc.
Advise the firm on whether it should undertake the project and identify the maximum price
Wholesome foods Plc should pay to acquire the Bonita Foods SL. Also, advise the firm on
the potential impact of foreign exchange on the project and evaluate the alternatives for
financing the purchase.

Submission requirements:

Your answer should be presented in the form of a report of 2,000 words total (excluding the
reference list). You must also submit a working Excel spreadsheet containing your
calculations.

You should use Arial font size 12 and 1.5 line spacing. Exceeding the word count by 10% or
more or deviations from the formatting instructions will attract a penalty of up to 5%. Not
submitting a working Excel spreadsheet will attract a penalty of 10%

The hand-in deadline for submission is 23.30 on 30th April 2021.

Submissions up to 24 hours late will attract a 10% penalty for each day up to 5 days late will
be capped at 50%. Reports submitted more than one week late will attract a mark of zero.
Referred work submitted late will attract a mark of zero.

Submit one electronic copy via Study net as a Word/PDF file.

This is an individual assignment and the report submitted should be entirely your own work.

This assessment is subject to anonymous marking so do not put your name on any document
you submit. However, you must put your SRN on each document you submit. The report will
be checked for plagiarism using Turnitin and you should check using the checker on the
module site prior to submitting.

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Appendix 1
Wholesome Organic Foods plc
Abridged Trading, Profit & Loss Account for the year ended
30th June 2020
All amounts are in thousands of pounds sterling

2020 2019
Sales 7844 6780
Opening Stock 208 200
Production Cost 5460 4760
Closing Stock -216 -208
Cost of Sales 5451 4752
Gross Profit 2393 2028
Administration Expenses 631.7 562
Selling Expenses 778 722
1410 1284
Operating Profit 983 744
Debenture Interest 60 60
Profit Before Tax 923 684
Corporation Tax 277 212
Profit After Tax 646 472
Ordinary Dividend 175 162
Preference Dividend 20 20
195 182
Retained earnings 451 290

Balance Sheet at 30th June 2020:

Fixed Assets (net):
Land & Buildings 1078 994
Agricultural Machinery 516 400
Processing Plant 620 580
Vehicles 195 135
Office equipment 160 139
2569 2248
Current Assets:
Stocks 216 208
Debtors 1176 839
Short-term Investments 255 255
Bank/Cash 140 136
1787 1438
Current Liabilities:
Trade Creditors 611 470
Corporation Tax 277 212
Final Dividend 175 162
1063 844
724 594
3293 2842
Long-term Liabilities:
7% Debentures 2025 500 500
2793 2342

Shares & reserves

£1 ordinary shares 1200 1200
£2, 5% Preference shares 200 200
Profit & loss 1393 942
2793 2342

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Appendix 2
NB:
Bonita Foods SL financial year end is 30th September
All amounts are in Euros
1 Pound Sterling = 1.16Euro

Draft Balance Sheet at 30th September 2020:

Fixed Assets (net):
Euro
Freehold Shops 600,000
Fixtures & Fittings 160,000
Delivery vehicles 70,000
Office equipment 20,000
850,000
Goodwill 50,000
Saleable patents 72,000
122,000
Current Assets:
Stocks 44,000
Debtors 25,200
Bank/cash 30,800
100,000
Current Liabilities:
Trade creditors 22,400
Short-term loan 34,000
-56,400
43,600
1,015,600
Long-term Liabilities:
20% bank loan 160,000
855,600
Shares & reserves
€1shares 550,000
Profit & loss account 305,600
855,600

Bonita Foods SL net profit after tax:

Euro
2016 82,000
2017 101,200
2018 103,800
The profit for the year 2019 108,000
2019/20is an estimate 2020 114,650
based on the first six
months.

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Guidance for the preparation of your report.

The purpose of this assignment is simply to give you the opportunity to demonstrate that
you have acquired the knowledge and skills identified in the Module Guide and that you can
apply them in a typical business situation.

You should approach the task as a business manager dealing with a ‘real’ business and
should:
a) Adopt a coherent approach to dealing with the set task with a clearly stated
business purpose.

b) Identify an appropriate theoretical dimension and consider the implications for

practice.

c) Adopt appropriate analytical methods and a critical perspective.

d) Refer to empirical work where appropriate.

Guidance for the preparation of your report cont’d.

Do refer to the assessment criteria given in the Module Guide which gives a general outline
of how marks will be awarded. Further specific advice about how marks will be awarded for
the coursework is given below.

Task Specific Assessment Criteria: Coursework

Communication Skills (Written) – 20 Marks:

Marks will be awarded for a) for the physical presentation and layout of your report, b)
adopting logical well supported (i.e. using appropriate citations) arguments, c) the extent to
which the report is accurate, brief, concise and clear, d) the standard of English, and, e)
compliance with standard Harvard referencing. Equal account will be taken of each element.

Knowledge & Understanding – 20 Marks:

You should establish a clear business focussed conceptual basis for your report – i.e. you
need to show what you are seeking to achieve and why it is important for managing the
Fenland Foods plc business (supported using appropriate citations).

Synthesis – 20 Marks:
From the case data given you should identify the nature of the decision(s) facing
Wholesome Organic Foods plc and identify appropriate theory to support the approach you
adopt and give your reasoning. i.e. which analytical tools are consistent with ‘business
focussed conceptual basis’ referred to above? (supported using appropriate citations).

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Analysis – 20 Marks:
Using the case data given, you should apply the analytical methods identified in the previous
section and evaluate the impact on the business in relation to the ‘business focussed
conceptual basis’ referred to above.

Evaluation – 20 Marks:
Conclusions should be arrived at based on your analysis of Wholesome Organic Foods plc
issues; i.e. what do the results of your analysis tell you? In your conclusions section you
should summarise the results of your analysis. Your recommendations will be assessed on
the extent to which they are linked to the analysis of Wholesome Organic Foods plc issues
and on the extent to which they are theoretically coherent – i.e. the extent to which they
are consistent with the theoretical/conceptual base you establish.

Student Support and Guidance

• For further help, contact your module leader in their drop-in hours or by email.
• Use the Grading Criteria and Mark Scheme to help improve your work.
• Go to CASE workshops, use the CASE website and drop-in hours
www.studynet.herts.ac.uk/go/CASE/
• Academic English for Business support is available through daily drop-ins from the
CASE office. See the CASE workshop timetable on the CASE main website page for
details.
• Make full use of Library search to identify relevant academic material and the
‘Subject Toolkit for Business’ which contains links to other Information Databases
and the Information Management contact details.
(http://www.studynet1.herts.ac.uk/ptl/common/LIS.nsf/lis/4DAF5390094771C2802
575ED004212BF)
Tutors allow students to test their work using Turnitin. Guidance on submission to Turnitin
via StudyNet can be found by using the following link.
http://www.studynet1.herts.ac.uk/ptl/common/asu.nsf/resource+library/TURNITIN+FOR+S
TUDENTS+2016+USER+GUIDE.pdf/$FILE/TURNITIN+FOR+STUDENTS+2016+USER+GUIDE.pdf

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