Accounting and Finance for Managers-ACC3015

Objective of the Case study: This case study aims at helping students to reflect on what they learnt throughout the module.

Instructions: The case study consists of two sections- Section A consists of 70 marks and Section B consist of 30marks. Students are expected to read the case study thoroughly and to answer all the required questions in a structured and organised manner with reference to published work. This is an individual assignment and it is worth 60% of the total module mark.

http://tundra.northampton.ac.uk/results/searchresult.asp?Title=mitigating+circumstances&Description=&Author=

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Please note that you are entitled to submit your assignment only once and the Turnitin originality report will only be available on the due date. There will be no draft submission. Feedback: There will be a written feedback four weeks after the deadline for submission. You will be informed through NILE when the feedback is ready.

Question 1

The following financial data (a,b,c)is forthree retail businesses, which are listed on the London Stock Exchange.

a)  Tesco PLC

b)  Morrisons PLC

c)  Sainsbury PLC

You are required to:

(a)         Select and justify at least 10 financial ratios and calculate 2 non-financial ratios to analyse the performance and financial position of the three companies. You are expected to use charts to compare performance of the three companies. You will need to look at the audited financial statement and carry out further research to explain the performance of the company over the five years.For clarity, you are expected to rank the companies based on the individual benchmarks and overall. (50 Marks)

(b)         Write a memo to the managing director of the worst performing company with recommendations of how the financial performance of the business can be improved. (15 marks)

(c)         Outline the limitations of relying on financial ratios to interpret firm performance? (5 Marks)

You are expected to research for more information on the companies and cite the material correctly. You can use the Global Business Browser database to access analysts' and SWOT reports.

Question 2

Sound Equipment Ltd was formed five years ago to manufacture parts for hi-fiequipment. Most of its customers were individuals wanting to assemble their ownsystems. Recently, however, the company has embarked on a policy of expansion andhas been approached by JBZ plc, a multinational manufacturer of consumer electronics.JBZ has offered Sound Equipment Ltd a contract to build an amplifier for its latestconsumer product. If accepted, the contract will increase Sound Equipment's turnoverby 20%.

JBZ's offer is a fixed price contract over three years, although it is possible for SoundEquipment to apply for subsequent contracts. The contract will involve SoundEquipment purchasing a specialist machine for £150 000. Although the machine has a 10-year life, it would be written off over the three years of the initial contract as it can only beused in the manufacture of the amplifier for JBZ.

The production director of Sound Equipment has already prepared a financial appraisal ofthe proposal. This is reproduced below. With a capital cost of £150 000 and total profits of£60 300, the production director has calculated the return on capital employed as 40.2%. Asthis is greater than Sound Equipment's cost of capital of 18%, theproduction director is recommending that the board accepts the contract.

                                       Year 1        Year 2        Year 3        Total

                                       (£)              (£)              (£)

Turnover                         180 000      180 000      180 000      540 000

Materials                         60 000        60 000        60 000        180 000

Labour                             40 000        40 000        40 000        120 000

Depreciation                    50 000        50 000        50 000        150 000

Pre-tax profit                   30 000        30 000        30 000        90 000

Corporation tax at 33%   9 900                    9 900                    9 900                    29 700

After-tax profit                20 100        20 100        20 100        60 300

You are employed as the assistant accountant to Sound Equipment Ltd and report toJohn Green, the financial director, who asks you to carry out a full financial appraisal of theproposed contract. He feels that the production director's presentation isinappropriate. He provides you with the following additional information:

i)                    Sound Equipment pays corporation tax at the rate of 33%;

ii)                   Themachine will qualify for a 25% writing-down allowance on the reducing balance;

iii)                  Themachine will have no further use other than in manufacturing the amplifier forJBZ;

iv)                 Onending the contract with JBZ, any outstanding capital allowances can be claimedas a balancing allowance;

v)                   The company's cost of capital is 18%;

vi)                 The cost of materials and labour is forecast to increase by 5% per annum for years 2and 3.

John Green reminds you that Sound Equipment operates a just-in-time stock policy and thatproduction will be delivered immediately to JBZ, who will, under the terms of the contract,immediately pay for the deliveries. He also reminds you that suppliers are paid immediatelyon receipt of goods and that employees are also paid immediately.

Notes:

For the purpose of this task, you may assume the following:

(a) the machine would be purchased at the beginning of the accounting year;

(b) there is a one-year delay in paying corporation tax;

(c) all cash flows other than the purchase of the machine occur at the end of each year;

(d)Sound Equipment has no other assets on which to claim capital allowances.

REQUIRED:

Write a report with recommendations to the financial director. Your report should include:

a)   Use the net present value technique to identify whether or not the initial three-year contract is worthwhile.                                 (10 Marks)

b)   Explain your approach to taxation in your appraisal.                  (6 Marks)

c)   Discuss two other investment appraisal methods that could be used to evaluate this project.                                                          (8 Marks)

d)   What others factorswould need to be considered before making a final decision.                                                                       (6 Marks)

You are expected to research for theoretical information on investment appraisal techniques and cite the material correctly. All assumptions made should be clearly stated.

Accounting and Finance Penalties

1. Word Count*: All assessments have a word count with a tolerance of 10% only. Submissions that exceed the word count will be penalised as follows-one grade point* for every 150 words or part thereof.
2. Missing References - penalty is three grade points minimum (see module guide for further details).
3. Front sheet missing-penalty one grade point.
4. Word count missing or inaccurate-penalty one grade point.

** Front sheet, contents page, references and any appendices do not count in the word count. 

Checklist before submission 

1.           Have you read, understood and acted in accordance with the referencing guidelines set out in the appropriate Accounting & Finance Module Guide.

2.           Where you have quoted directly from or where you have paraphrased the work of others, have you acknowledged and appropriately referenced the source of your quotation in the body of the text?

3.           Have you placed all direct quotations in inverted commas?

4.           Have you listed and correctly cited all your sources in your bibliography?