BIRMINGHAM CITY BUSINESS SCHOOL

POSTGRADUATE DEGREES

COURSEWORK FRONT SHEET

MODULE TITLE: Managerial Finance

MODULE CODE: ACC7032

LECTURER: Amerdeep Jakhu

ISSUE DATE: 19th September 2022

HAND IN DATE: 11th January 2023 at 12.00pm (midday)

HAND BACK DATE: 8th February 2023

Learning outcomes and pass attainment level:

• Evaluate the different competing financial objectives of the firm and the agency problem
between shareholders and managers in publicly listed companies.

• Demonstrate the ability to analyse financial data, conduct cost-benefit analysis and
financial planning for effective business decisions using spreadsheet software package.

• Critically evaluate investment projects using appropriate investment appraisal techniques

to assess suitability and viability of the projects consistent with the overall strategy and
business model(s) of the firm.

• Critically appraise the major issues of capital management, relative advantages and
disadvantages from the various perspectives of the stakeholders of the firm.

General guidance

The assessment for this unit is one coursework assignment. The required mark has been set
at 50%. If you are attempting a first or second re-sit attempt your pass mark will be capped at
50%.

This is an individual assessment. Whilst there is no objection to you discussing the content
of this assignment with your peers, your final submission must be completely your own work.
Plagiarism and copying will not be tolerated and may lead to subsequent penalties
being imposed. This is an individual assignment and all calculations, analysis and narrative
submitted must be your own work.

The assignment will require a considerable personal investment of time and effort.

Structure of the assignment

Page 1 of 11
There are three separate questions included within the assignment and you should attempt all
three questions. There is no word limit to questions. If any part of the assignment is ignored
this reduces the maximum marks which could potentially be awarded. The assignment answer
should be carefully checked before submission for the use of appropriate and acceptable
grammar. The correct use of English spelling is to be employed throughout.

All the numbers should be reported in 2 decimal points.

Submission of the assignment

All three questions must be attempted and submitted in one document. You are advised to
prepare your assignment in Word format and copy and paste contents from Excel where
spreadsheets have been used to support your work. Only Microsoft Word file will be
allowed for submission.

Your student ID number should be shown on each page of your assignment.

Your assignment should be submitted electronically via Moodle and you are advised to do this
well in advance of the submission deadline to avoid any system related issues. Feedback on
your assignment will also be provided via Moodle once the marking has been completed.

Marking of the assignment

The matrix on the following page has been provided to assist you in completing your
assignment and is an indicative guide only, not a formal marking scheme.

Page 2 of 11
 Indicative marking guide
Fail
(0%-49%)
Question 1 LO1
A lack of breadth and depth of financial
analysis techniques accompanied by
incorrect formulae or calculation without
appropriate explanation.
Poor layout or presentation in anything
other than business report style.
Inadequate grammar and lacking in
overall knowledgeable synthesis.
Question 2 LO2, LO3 and LO4
A lack of understanding of management
accounting and decision making. Unable
to produce the correct format and
calculations. Limited or no narrative
discussion or recommendations and
conclusions. Poor academic writing and
referencing.
Questions 1,2,3 and 4
A lack of understanding of the topic and
the related literature. Limited or no
narrative discussion or
recommendations and conclusions.
Poor academic writing and referencing.
Pass
(50%-59%)
Evidence of some financial analysis
techniques but with errors of formulae
and calculation with insufficient
explanation and adequate presentation.
Attempt at a business report format with
some supportive appendices. Mainly
descriptive with some attempt at
synthesis. Grammar and structure being
adequate.
Ability to apply some management
accounting decision making techniques.
Demonstrates an adequate
understanding of the principles and
techniques involved. Reasonable
attempt at analysis and discussion of
findings, though of limited depth.
Ability to research and apply theory to a
reasonable degree.
Demonstrates the ability to critically
evaluate and make the appropriate
conclusions. Reasonable attempt at
analysis and discussion of findings,
though of limited depth.
Page 3 of 11
Commendation
(60%-69%)
Wide range of financial analysis
techniques evident and supported by full
disclosure of formulae and accurate
calculation in a clear format.
Presented in business report format and
coherently structured. Supported by
referenced appendices. Effective and
well-reasoned narrative discussion.
A good application of management
accounting for decision making.
Demonstrates a good understanding of
the principles and techniques involved.
Good analysis and discussion of findings,
with good use of academic references
which support clear and well explained
conclusions.
A good understanding of the topic.
Demonstrates a good understanding of
the principles and techniques involved.
Good analysis and discussion with good
use of academic references which support
clear and well explained conclusions.
Distinction
(70%-100%)
An excellent range of financial analysis
techniques which are supported by full
disclosure of formulae and accurate
calculation in a clear format.
Excellent business report format and well
structured. Supported by fully referenced
appendices. Excellent analytical and
justified explanations showing synthesis and
application.
Excellent application and understanding of
management accounting for decision
making. Thorough and detailed critical
discussion with excellent use of a range of
academic references which support clear,
practical, and well explained
recommendations and conclusions.
Excellent understanding of the topic.
Thorough and detailed critical discussion
with excellent use of a range of academic
references which support clear, practical,
and well explained recommendations and
conclusions.
Question 1

The scenario
Sheen Holdings Plc wants to diversify its portfolio of investments in subsidiary companies. It
already owns a retail company with stocks of groceries and a much smaller range of non-food
goods than Extra hypermarkets. They have identified 2 possible acquisition targets and want
you to complete the ratio analysis, evaluate the findings, and advise them on which one they
should acquire and why.

They have identified 2 young companies that are both 2 years old and growing rapidly. They
are very different in what they do: ALD Ltd is based in 2 retail stores, ALD Ltd are looking
into the possibility of converting their failing retail store into a provider of hotel and ALD is
looking for another property; ZEE Ltd has a large fresh baked item store, with the potential
for more space as it is based new build building which still has empty space. ZEE is looking
for a contract with a well-known brand in the retail industry so that they stabilise their income
and growth.

Both target companies are 2 years old and here are extracts from their financial statements:

Statements of Profit or Loss (SoPL)

ALD Ltd ZEE Ltd
vertical analysis £ vertical analysis
Turnover 2,244,560 100% 2,772,375100%

Cost of sales (1,127,592)50.24% (751,704)27.11%

__________ __________
Gross profit 1,116,96849.76% 2,020,671

Administrative expenses (635,096) 28.29% 44.16%

(1,224,413)
Other operating income 22,030 0.98% 0 0.00%
__________ __________
Operating profit 503,902 22.45% 796,259

Other interest receivable and similar 0.25%

income
5,500 2,262 0.08%
Interest payable and similar 0 0.00% (96,263) 3.47%
charges __________ __________
Profit on ordinary activities 509,402 22.69% 702,25825.33%
before taxation
(56,810) 2.53%
Tax on profit on ordinary activities (208,056)7.50%
__________ __________
Profit for the year 452,592 20.16% 494,20217.83%
__________ __________

Page 4 of 11
Statements of Financial Position (SoFP)
ALD Ltd ZEE Ltd
£ vertical analysis £ vertical analysis
Fixed assets
Tangible assets 97,600 10.5% 75,000 6.4%
Total Non Current Assets 97,600 10.5% 75,000 6.4%

Current assets
Trade receivables 234,080 25.2% 440,119 37.5%
Cash at bank and in hand 598,815 64.4% 659,718 56.2%
Total Current Assets 832,895 89.5% 1,099,837 93.6%

Total Assets 930,495 100.0% 1,174,837 100.0%

Liabilities
Current liability: Trade payables 477,900 51.4% 300,763 25.6%

Non current liability: Bank borrowing 0 0.0% 379,869 32.3%

Total Liabilities 477,900 51.4% 680,632 57.9%

Equity and reserves

Called up share capital 3 0.0% 3 0.0%
Profit and loss account 452,592 48.6% 494,202 42.1%
Total Equity 452,595 48.6% 494,205 42.1%

Total Equity and Liabilities 930,495 100.0% 1,174,837 100.0%

Page 5 of 11
The ratio analysis below is in 4 categories (Profitability, Liquidity, Management Efficiency, and
Gearing), but is incomplete:

Ratios Formulae ALD Ltd ZEE Ltd

Profitability Ratios
ROCE PBIT % 54%
Cap Employed

Return on Assets PBIT % 54%

Total Assets

Asset Turnover Revenue x 2.4

Total Assets

Gross Profit Margin Gross profit % 49.8%

Revenue

Net Profit Margin PBIT % 22%

Revenue

Efficiency Ratios
Receivables Collection period (R) Trade receivables x 365 days 38
Sales

Payables payment period (P) Trade payables x 365 days 155

Cost of sales

Cash Cycle R-P days -117

Liquidity Ratios
Current Ratio Current Assets x:1 1.7
Current liabilities

Financial Risk or GEARING Ratios

Gearing Fixed int capital % 0.0%

Total capital employed

Interest cover ratio PBIT x 0.0

Interest charges

Page 6 of 11
Requirements

1.1 Prepare a business report, to the board of directors of Sheen Holdings Plc using ratio
analysis. Your 800-word (+/- 10%) report must evaluate the financial statements and
ratio analysis and make a convincing argument for investment in one of the two target
companies. Your analysis, conclusions and recommendations should be supported with
current situation of retail market and academic references.
(800 words, 32 marks)

1.2 Evaluate the working capital management (WCM) of both companies and draw
conclusions on which is stronger.
(200 words, 3 marks)

1.3 What sources of finance should Alphabet Holdings Plc consider to finance the
investment in either ALD Ltd or ZEE Ltd? Critically evaluate the options you have
identified and make a well-reasoned, and well-referenced, conclusion and
recommendation. (350 words, 5 marks)

Question 1 Totals: 1350 words, 40 marks

Marking guide

Carefully examine the marking guide below to ensure that you structure your answer to
include every element:

RATIO TOTAL
Mark allocation INTERPRETATION OTHER
CALCs marks
Q1.1
Profitability 5 1+1+1+1+1 10
Liquidity 3 2 5

Management efficiency 1 2+2 5

Gearing 2 2+2 6
Conclusion 2 2
Recommendation 2 2

Credible academic
citations; Layout, structure 2 2
and grammar

Q1.2 Working Capital

3 3
Management
Q1.3 Sources of finance 5 5
Total 11 15 14 40

Page 7 of 11
QUESTION 2 A:

You work for Zebra Holdings Plc as a junior management accountant.

The board of directors are considering ways to improve the suboptimal performance of an
investment in a manufacturing company called ZA products Ltd.
From the table below the Board of Directors are considering halting the production of 2 of their
products that appear to be making no profit.
You spot that marginal costing would show the results differently and may affect the directors’
decision.

Computer Ipad Laptop Total

(£m) (£m) (£m) (£m)
Sales 15,623.00 8,543.00 9,849.00 34,015.00

Cost of sale
- -
Material -4,876.00 -4,344.00
3,254.00 12,474.00
- -
Labour -5,125.20 -4,815.60
5,216.40 15,157.20
-
Overheads -2,234.00 -2,234.00 -6,702.00
2,234.00
Profit /(Loss) 3,387.80 -2,850.60 -855.40 -318.20

Requirements for Question 2 part (a)

i. Calculate the contribution of each product? 5 marks

ii. Use your findings from part (a) and appropriate academic references to explain
whether the company should stop making Laptop? 2 mark

iii. Use your findings from part (a) and appropriate academic references to explain
whether the company should stop making Ipad? 2 mark

iv. Discuss how and why marginal costing calculates contribution to pay overheads and
why this is useful in evaluating product value to a firm? 3 marks

v. Do you agree that profitability will improve by ceasing to make Products laptop and
Ipad? What do you suggest the company does to increase profitability?
3 marks

Question 2 (a) total 15 marks

Page 8 of 11
Question 2 part B (continued)

The company board have approached you to get your professional advice opinion on their
expansion plan, which entails opening another firm. Below are the figures for the first one
that is planned for in the north of Birmingham location next year.

Company policy dictates that any decision should be based on the results of calculating Net
Present Value (NPV) of 3 years cash flows using a cost of capital of 12%, Payback Period
(PBP) must be less than 3 years, and the Internal Rate of Return (IRR) of the project should
provide a 5% cushion in case of increases in inflation or interest rates.

The investment consists of £100,000 for the land, building costs of £-130,000 and £-87,000
for fittings and equipment.

The cash flows in year 1 are expected to be: total sales revenue £650,000; the cost of
cement products cost £155,999; metal stock cost £120,000; staff costs £26,523; light & heat
£40,251.88; other overheads £140,951.12. The cash flows for the following years are the
same, but are expected to increase by 2% inflation each year.

Requirements for Question 2 part (b)

Using the information above and in accord with the above stated company policy you
are required to calculate:

i. Net Present Value (NPV) 4 marks

ii. Payback period (PBP) and Discounted Payback Period (DPBP) 4 marks

iii. Internal Rate of Return 1 marks

iv. Based on your calculations do you recommend the investment is made and
the opening of the new manufacturing unit? 2 marks

v. Critically discuss the limitations of the above project appraisal techniques

used and any other recommendations to the board. 4 marks

Question 2 (b) total 15 marks

Question 2 Total 30 marks

Page 9 of 11
Question 3

YummyBites Goodies Limited (YBG) specialises in producing three types of high-quality

cakes: Chocolate, Strawberry and Vanilla.

For a rich nutritional benefit, YBG uses Organic Eggs in all its cakes. YBG serves a niche
market that Organic laying eggs were affected by a disease and organic eggs are in limited
supply. Alice Swish, the Buying Manager has been informed by the organic eggs supplier that
total annual organic eggs supply for 2023 is estimated to be limited to 7,800.

YBG’s financial year starts in September and ends on the 31 st of August. The maximum market
demand and organic eggs requirements per cake are shown below:

Budgeted data year ending 31 August 2023

Chocolate Strawberry Vanilla

Maximum annual demand 1,200 1,000 700

Organic eggs per cake 2 4 3

The selling prices, other raw materials and labour costs rates per cake for 2023 financial year
will be the same as those in 2022.

For quality assurance and freshness, YBG operates on a just-in-time production (JIT) method
so that opening and closing inventory levels are zero.

The sales director has already accepted an order for 500 Chocolates and if not fulfilled, would
incur a financial penalty of £10,000. This contract order is not included in the Chocolate’s
maximum market demand figure.

You are the Management Accountant and Clara Ores the Finance director has requested you
to advise YBG’s directors whether to:
1. first fulfil the contract and then prioritise production in the normal way
or
2. breach the contract and incur the penalty.

Recorded results for previous financial years is below:

Actual results for the year ended 31 August 2022

Chocolate Strawberry Vanilla Total

Sales (units) 900 600 400 1,900

Sales Revenue (£) 72,000 39,000 44,000 155,000

Raw materials (£) 32,000 11,000 14,000 57,000

Direct labour (£) 21,000 13,000 12,000 46,000
Semi-Variable Overheads (£) 10,120 9,670 7,480 27,270
Total Costs 63,120 33,670 33,480 130,270

Page 10 of 11
Profit / (Loss) (£) 8,880 5,330 10,520 24,730

Actual results for the year ended 31 August 2021

Chocolate Strawberry Vanilla Total

Sales (units) 650 420 330 1,400

Sales Revenue (£) 48,750 26,040 34,320 109,110

Raw materials (£) 21,667 7,345 10,920 39,931

Direct labour (£) 14,219 8,680 9,360 32,259
Semi-Variable Overheads (£) 9,600 8,300 6,700 24,600
Total Costs 45,485 24,325 26,980 96,790

Profit / (Loss) (£) 3,265 1,715 7,340 12,320

Required:

Use management accounting techniques for example High-Low Method where

applicable.

3.1 Applying marginal costing techniques, rank the products. 6 marks

3.2 Prepare a budgeted production schedule and a marginal cost income statement
(analysed by product including the total) for the year ending 31 August 2023
assuming that the Chocolate contract IS honoured 8 marks
3.3 Prepare a budgeted production schedule and a marginal cost income statement
(analysed by product including the total) for the year ending 31 August 2023
assuming that the Chocolate contract IS NOT honoured 8 marks
3.4 Considering calculations above and other qualitative issues, advise
YummyBites Goodies (YBG) directors whether to honour or dishonour the
Chocolate Contract. 3 marks
3.5 Budgeting serves various purposes including planning, control, motivation and
communication. You have been requested by Clara Ores the Finance Director to
explain to YBG directors the importance of budgeting in light of the purposes
above. 5 marks

Question 3 Totals: 600 words/equivalent, 30 marks

Total Marks 100

Page 11 of 11