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ASSESSORS : John Foster

------------------------------------------------------------------------------------------------------Notes for Students: You are required to produce an individual report (minimum 3,000 words) as required on the attached case study. Your report should be written in your own words but you may refer to suitable sources of information where appropriate.

efficient service making use of electronic ordering systems (this involves the use of hand held computers to pass customers’ orders directly to the kitchens). Yakisoba has won many awards and plaudits for its fresh food.000 each but the main finance takes the form of bank loans secured on the restaurants. Both companies would be free to continue with their current customers (and develop new ones if possible) but they would be under contract to supply all Yakisoba’s restaurants with their requirements. on open account terms of 60 days.Yakisoba is a UK based worldwide chain of Japanese noodle restaurants. The restaurants are all modelled on ‘ramen’ shops which have been popular in Japan for hundreds of years. . Yakisoba’s cost of capital is currently 14% but the company has decided to use a risk adjusted rate of 17% in order to evaluate the purchase of the stake in the noodle producer. The company’s business philosophy is to provide a fast. This is expected to increase by 25% per year for the next five years and thereafter remain steady for the foreseeable future. The company wholly owns all of its UK restaurants and franchises all of its international restaurants. New Zealand. (You may assume that the current HK$/£ exchange rate is HK$15/£ and that inflation in the UK is currently 2. Rates of inflation in Hong Kong and the UK are expected to converge and equalise in about 6 year’s time. Minor adjustments to the menus to cater for local tastes are sometimes allowed but not encouraged. It would cost Yakisoba HK$75 million for the purchase of 40% stake in the Hong Kong Noodle Company and a100% stake in the ramen fixtures manufacturer. The estimated share of cash profits from both companies returned to Yakisoba in the UK in the first year of operation is estimated at HK$10 million. The company is also planning to establish restaurants in most major UK cities within ten years and to franchise to as many suitable countries as possible within the next five years. It is considering the purchase of major stakes in a small noodle producer in Hong Kong and a ‘ramen’ fixtures manufacturer also based in Hong Kong. 2 in Ireland.5% whilst in Hong Kong it is currently 3%. Most restaurants also operate a take-away service. Denmark and Turkey. The company has over 40 restaurants in the UK. The company is owned by four partners who initially contributed £500. excellent service and value for money and is probably correct in its claim to be the most popular Japanese noodle restaurant in the UK. 3 in Amsterdam and one in each of Dubai. The company attempts to ensure that the eating experience at every one of its noodle restaurants is as consistent and similar as possible. In return Yakisoba would receive 40% of the annual profits of the noodle company plus an undertakings (from both companies) to supply all the company’s restaurants. In order to achieve a better consistency in restaurant ambience and food Yakisoba has decided to start manufacturing some its own ingredients and restaurant fixtures and fittings. at normal market price. 11 in Australia.

the potential effects on the viability of the project of any such inaccuracies. However subject to the requirement to pay:    An initial franchise fee A five yearly franchise fee renewal A fixed percentage of annual profits they will still enjoy a significant degree of financial independence.Yakisoba has not previously had a specialist Treasury Function and has recently employed you as a Finance Manager responsible for treasury issues. b) Advise the company on the desirability of developing an exchange rate risk management strategy. You are required to: i) Evaluate the project using appropriate techniques. You are required to: i) Identify and discuss the benefits and difficulties of centralising Yakisoba’s treasury system. The franchised restaurants will have less operational independence. using appropriate figures. iii) You are concerned that some of the estimates you have used may be incorrect. being subject to strict rules on menus. You have been asked to produce a report covering the following: a) An evaluation of the project to purchase the noodle producer and ramen manufacture in Hong Kong. Highlight and explain any issues you may have concerning your calculations. d) Suggest how Yakisoba might best finance its proposed expansion. c) Suggest how Yakisoba might best organise its Treasury Function in order to take full advantage of the ‘Multinational Financial System’. For this purpose you may assume that the noodles producer and the ramen fixtures manufacturer will. You are required to: i) Identify the criteria Yakisoba should consider when deciding on its future . subject to the aforementioned restrictions. ingredients and equipment. Evaluate. ii) How Yakisoba might best take full advantage of its ‘Multinational Financial System’. ii) Comment upon and evaluate the company’s use of 17% as the cost of capital for the project. enjoy a good deal of operational independence.

relevant.sources of financing. Marks will be allocated to each Part as follows: a) 30% b) 15% c) 25% d) 30% And within each Part marks will be allocated appropriate as follows: Coverage of theoretical underpinnings involved* Demonstration of a critical understanding of the theoretical aspects involved* Practical application of the theoretical aspects to the case study* Evidence of additional. iii) Briefly discuss how the chosen method(s) of finance might influence the cost of capital used by Yakisoba to evaluate future investments. research Coherence and quality of report 25% 25% 25% 15% 10% . ii) Advise the company on the main risks associated with its present capital structure and explain how these risks might be managed.