D31CG H00391794

Q1)

Strategic planning in the Construction industry may differ from company to company. The main aim of any given company is to achieve the objectives
framed.

There are various strategies and policies evaluated by the industry, out of which a particular strategy is chosen as the final corporate plan. The final
strategic plan will comprise of few objectives. For example, three basic strategies for the entire company, profitable statements and financial planning, and
separate plans for each functional area.

Strategy is to

Frame an objective

Decide the volume of the company

Identify the competition in the industry

Objective Planning can be of three ways. Quantitative (For example, have a market share of 10% by 2025), qualitative (introducing the latest technologies
and futuristic innovative measures to deliver quality construction), semi-quantitative (for example, to achieve and be in the top 5 list of this construction
sector by 2025 by holding greater market share).

Financial Planning

Financial Planning is the main core strategy of the company which decides the overall budgeting and required finance of the company. The major cause of
business failure is the lack of funds. Hence for a company to grow financially strong, by better profits on capital invested by shareholders which leads to
better dividends increasing the trust over the company concluded better market share holder.

The benefits of Financial Planning are to frame a high budget backup for the future, provides authority to a particular activity, and control the capital
investment, cash flow, revenue, etc.

The target required for a company’s corporate Performance is to improve the returns on capital investment and to have a better market share than now.

For example, the returns can be increased by 15 % and market share by 14%

The returns on Capital investment are Profit before tax divided by capital invested.

Market Share is the value of works by the company divided by the value of works in the market.

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Internal Appraisal

Internal Appraisal is the internal resources of a company. It shows the importance of signifying a company’s capabilities and its objective within the
organization. Internal Appraisal of a company provides its strength and weakness of the company is a whole perspective. It signifies how the management
has used its resources in a good manner.

For Example: consider a company’s turnover to be 7000000

Its Profit is 200000 and the capital invested is 2000000.

Hence,

Last year’s Profit Margin is 200000/7000000 = 2%

Last year’s Return on Capital Investment = 200000/2000000 = 10%

External Appraisal

External Appraisal is the analysis of the business environment by potentially comparing with the other companies in the same area using the published
data, annual reports, and statistics published by the regional government.

The evaluated data using the surveys generates data forecasted which can be directly compared with the current productivity of the company.

The difference between the data derived and the current data gives the performance gap to be considered which can be used to develop the objectives
further to achieve the long-term set in each specific department lagging to the goal set.

Identifying the strategies applicable and evaluating them such as

1) SWOT Analysis
2) Directional policy matrix
3) Product portfolio approach
4) Strategy profile approach.

Comparing and deciding which strategy to be incorporated to rely on the best outcome, the strategy can undergo vigorous computer based testing for the
financial analysis to discuss on the investment capital.

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The final corporate plan is introducing the ultimately chosen strategy to be involved in the company’s productivity to gain more profit and market share
comprising

1) A general policy statement of the decided strategy

2) Plans for every single functional department to undergo changes
3) Financial statement documentation for the profitability, capital and flow of capital for the safety horizon.

Q2)A)
Plant 1
Year 0 1 2 3 4
Initial Capital Cost 5000000
Maintenace Cost 50000 50000 80000 110000
Hire Income 1200000 1200000 1150000 1100000
Resale Value 3000000
Net Income 5000000 1150000 1150000 1070000 3990000
Present Worth 1 0.9174 0.8417 0.7722 0.7084

Present Worth of Net Income

Year 0 5000000
Year 1 1055010
Year 2 967955
Year 3 826254
Year 4 2826516

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Total Present
worth of Net
Income 675735

CR factor for
4years 0.3087
EAI 208599

Plant 2
Year 0 1 2 3 4 5 6
Initial Capital Cost 8000000
Maintenace Cost 75000 75000 75000 75000 75000 75000
Hire Income 1400000 1400000 1400000 1400000 1400000 1400000
Resale Value 6000000
Net Income 8000000 1325000 1325000 1325000 1325000 1325000 1325000
Present Worth 1 0.9174 0.8417 0.7722 0.7084 0.6499 0.5963

Present Worth of Net Income

Year 0 8000000
Year 1 1215555
Year 2 1115253
Year 3 1023165
Year 4 938630
Year 5 861118
Year 6 4367898
Total Present
worth of Net
Income 1521618

CR factor for 6 0.2229

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years
EAI 339169

It is adviced to use Plant 2 as its EAI is higher than Plant 1

Q2)B)
Plant 3
Year 0 1 2 3 4 5 6 7 8
Initial Capital Cost 9000000
Maintenace Cost 120000 120000 120000 120000 120000 220000 270000 320000
Hire Income 1700000 1700000 1700000 1700000 1600000 1500000 1400000 1300000
Resale Value 6000000
Net Income 9000000 1580000 1580000 1580000 1580000 1430000 1280000 1130000 6980000
Present Worth 1 0.9174 0.8417 0.7722 0.7084 0.6499 0.5963 0.547 0.5019

Present Worth of Net Income

Year 0 9000000
Year 1 1449492
Year 2 1329886
Year 3 1220076
Year 4 1119272
Year 5 929357
Year 6 763264
Year 7 618110
Year 8 3503262
Total Present
worth of Net
Income 1932719

CR factor for 8 0.1807

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years
EAI 349242

Q2)C)

Plant 3 is adviced to be used as its present worth of net income is higher than the other two options. In Future, if the value of Plant 1 and plant 2 changes
then it is better to use plant 1 and plant 2. At present as the EAI. net income value , capital cost , maintenance cost is higher in plant 3 it is advicable to use
plant 3. The no. of years in plant 3 is also more and there is possibility of its net income increasing . Whereas in Plant 1 if the no.of years increases , its
performance might decrease with reference to the value derived .

Q3)
Vincent contracting company
3A) Profit and Loss Account for the year ending 31 December 2021
Turnover 37,00,000
Cost 29,00,000
Overheads 2,40,000 Depreciation
Marketing Expenses 41,000
Building depreciation per
Depreciation 74,000 year = 30,000
Plant, cars and furniture
depreciation per year
Profit before interest 4,45,000 (2,500,000/5) = 44,000

Interest on loan (1500000 x 9%) 1,35,000 Total depreciation per year 74,000
Profit before tax 3,10,000
Tax (19% of Profit after interest) 58,900
Profit after tax 2,51,100

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Dividends (2p per share of 1,900,000

shares) 38,000
Retained Profit 2,13,100

Calculation of short term and long term

loans
Loan
(principal) 15,00,000
Annual loan instalment (loan and interest) (1,500,000 x
0.1558) 2,33,700

interest on loan paid by 30 Dec 2021 (1,500,000 x 9%) 1,35,000

Short term loan principal paid by 30 Dec 2021 (2,33,700 -
135,000) 98,700
Long term loan prinipal outstanding on 30 Dec 2021
(1,500,000 - 98,700) 14,01,300
interest on loan to be paid by 30 Dec 2022 (14,01,300 x
9%) 1,26,117
Short term loan principal to be paid by 30 Dec 2022
(2,33,700 - 126,117) 1,07,583

Long term loan principal outstanding on 30 Dec 2022

(14,01,300 - 1,07,583) 12,93,717

Balance Sheet as at 31 December 2021

Fixed Assets
Buildings 15,00,000
Plant, Furniture & Cars 6,70,000

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Less Depreciation -74,000 20,96,000

Current Assets
Debtors = Certified by client
- cash received = 3.4 - 2.8 =
Debtors 6,00,000 0.6M
WIP = Value - certified by
Work in Progress 3,00,000 client = 3.7 - 3.4 = 0.3M
Shareholders' Funds(Retained profit + Org. Shares) = Total
Cash 11,56,300 20,56,300 Assets - Total Liabilities
2113100 = Cash + 2,996,000 - 2,039,200
Total Assets 41,52,300 Cash = 1156300

Current Liabilities
Creditors = Cost - Cash paid
Creditors 5,00,000 = 2.9 - 2.4 = 0.5M
Short term loan amount 1,07,583
Marketing Expenses 41,000
Tax 58,900
Dividends 38,000
7,45,483
Long term liabilities

Long term loan amount 12,93,717 12,93,717

Total Liabilities 20,39,200

Total Assets - Total Liabilities 21,13,100

Ordinary Shares 19,00,000

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Retained Profit 2,13,100

Shareholders' Funds 21,13,100

Q3)B)
Dividend
Dividend share yield = Dividend per share Evaluates how investors
Market Price per share have been rewarded over
0.02 time
2%

Dividend Cover Dividend cover = Earnings per share

Dividend per share
Investment
EPS = Net profit after tax 251100 Low ratio
Ratios
no.of ordinary shares 1900000 (1:2:5) suggests
EPS = 1.321 its earnings are
6.6 low or too
much is being
paid out

Price Earning ratio = Market Price epr share =1 High ratio indicates a
Earnings per share = 0.1321 popular share . High ratio
shows that investors get
7.57 little for their money.

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