UGB392 Financial Management

Individual assignment

Weighting – 100% of the marks for this module

This is an individual assignment of 3,000 words for guidance purposes.

The hand in date is: Friday 16th May 2025

Students are required to submit their coursework through CANVAS. Only

assessments submitted through CANVAS will be marked. Any other submissions,
including a submission to your study centre in hard copy will be treated as a non-
submission.

Requirements:

Students are required to select ANY TWO of the three possible questions contained
within the assessment. Each question carries a maximum mark of 50 marks.

The assignment has been designed to cover the following learning outcomes
associated with successful completion of the module:

LO1: Evaluate key strategic decisions that a business may have to make and
appreciated how the accounting and finance profession can assist in making and
evaluating those decisions.

LO2: Critically understand specific analytical skills in key decision areas within
strategy and finance at local and international level.

LO3: Appraise the limitations of the current state of financial theory in making
sustainable strategic business decisions.

LO4: Apply key valuation concepts and methodologies of financial decision

making in order to contribute to the wider sustainable decision making of an
organization.
Question 1

It is the middle of December 2024 and the managers of Daniels Company are looking at
working capital management for January 2025. Forecasted financial information at the
start of January 2025 is provided below:

Inventory $442,500
Trade receivables $488,400
Trade payables $512,500
Overdraft $499,250

All sales are on credit and they are expected to be $7,500,000 for the whole of 2024.
Monthly sales information is provided below:

November 2024 (actual) $614,000

December 2024 (forecast) $622,000
January 2025 (forecast) $684,000

Daniels Company currently has a gross profit margin of 30%. Although Daniels Company
offers 30 days credit, only 95% of customers pay in the month following the purchase,
with the remaining customers taking an additional month of credit.

Inventory is expected to increase by $32,600 during January 2025.

Daniels Company plans to pay 80% of trade payables in January 2025 and defer the
remaining 20% until the end of February 2025. All suppliers of the company require
payment to be made within 30 days. Credit purchases from suppliers during January 2025
are expected to be $484,000.

Interest of $46,800 is due to be paid in January 2025 on fixed rate bank debt. Operating
cash outflows are expected to be $368,700 in January 2025. Daniels Company has no cash
and currently relies solely on its overdraft to finance daily operations. The company
currently has no plans to raise long-term finance during January 2025.

Assume each year has 365 days.

Required:

a. Calculate the cash operating cycle of Daniels Company at the start of January 2025.
(4 marks)
b. Calculate the overdraft expected at the end of January 2025. (6 marks)
c. Calculate the current ratios at both start and end of January 2025. (5 marks)
d. The management of working capital has been recognised as extremely important in the
context of effectively and efficiently running a business, with many businesses failing
due to poor management of working capital. Critically evaluate the differing elements
of working capital management ensuring the response addresses key risks that can be
reduced through the effective and efficient management of working capital. (35
marks)
Guidance:

Within this section of work students should initially demonstrate an ability to perform a
range of working capital calculations and these calculations should include all relevant
workings and processes used to derive the solutions. You can only achieve maximum
marks for calculations if all workings and processes are clearly illustrated. Within the
discursive / evaluative section of the assignment students should demonstrate extensive
understanding and knowledge of how efficient and effective management of differing
elements of working capital can reduce risk and improve business performance. The
differing aspects of working capital encapsulating receivables management, inventory
management, cash management, and payables management should all be embedded into
the response along with recognizing the importance of how these differing elements work
together within the context of efficiently managing working capital. The response should
demonstrate substantial evidence of wider reading, be referenced as per Harvard
referencing requirements, and provide evidence of the application of working capital
management techniques used within a real-life business context. Real-life examples can be
drawn from differing countries, industries, and individual businesses, clearly addressing
whether working capital management is applied within practice.

Total for Question 1 – 50 marks

Question 2

The finance directors of Allen Company are currently considering a planned investment
project costing $52,000,000, payable at the start of the first year of operation. The
following information relating to the potential investment project is provided below:

Year 1 Year 2 Year 3 Year 4

Sales volume (units/year) 650,000 671,000 680,000 698,000

Selling price ($/unit) 43.00 43.00 43.00 43.00
Variable costs ($/unit) 13.00 13.20 13.44 13.72
Fixed costs ($/year) 1,000,000 1,040,000 1,100,000 1,150,000

This information needs adjusting to take account of selling price inflation of 4% per year
and variable cost inflation of 3% per year. The fixed costs, which are incremental and
related to the potential investment project are expressed in nominal terms. The year 4 sales
volume is expected to continue for the foreseeable future.

Allen Company currently pays corporation tax at a rate of 30% one year in arrears. The
company can also claim tax-allowable depreciation on a 25% reducing balance basis.

The views of the directors of Allen Company are that all investment projects should be
analyzed and evaluated over four years of operations, with an assumed scrap value at the
end of the fourth year of 8% of the initial investment cost. Both net present value and
discounted payback must be used to analyze investments with the maximum discounted
payback period being two years. The real after-tax cost of capital of Allen Company is 8%
and its nominal after tax-cost of capital is 12%.

Required:

a. Calculate the net present value of the planned investment project. (15 marks)
b. Critically analyse the financial viability of the investment project. (5 marks)
c. Upon assessing the feasibility of differing capital investment projects financial
managers utilize various differing techniques to make well-informed, balanced
decisions that align with key corporate objectives. Critically compare and contrast two
investment appraisal techniques that could potentially be used within this decision-
making process, at least one of which must be a discounted cash flow technique.
(30 marks)
Guidance:

Within this section of work students should initially demonstrate an ability to perform
investment appraisal calculations and should include all relevant workings and processes
used to derive the solutions. You can only achieve maximum marks for calculations if all
workings and processes are clearly illustrated. Furthermore, students should then
appropriately analyse calculated data in the context of how it can inform the decision-
making process associated with a potential investment opportunity. Within the discursive /
evaluative section of the assignment students should demonstrate extensive understanding
and knowledge of two investment appraisal techniques used by financial managers, how
they can inform future projects, what limits their ability to guide investment, and which
technique would be preferable (with reasons). The response should clearly depict
extensive evidence of wider reading, be referenced as per Harvard referencing
requirements, and provide evidence of the application of the chosen techniques within a
real-life business context. Real-life examples can be drawn from differing countries,
industries, and individual businesses, clearly identifying whether the chosen investment
appraisal techniques are applied in practice.

Total for Question 2 – 50 marks

Question 3

Jones PLC. has distributable earnings of $78m, a weighted average cost of capital of 13%,
and a P/E ratio of 38.1. It is in the process of taking over Darnold PLC whose financial
details are as follows:

Darnold PLC : Key financial data

Profit before interest and tax $34.00m

Interest paid $6.00m
Corporate tax $7.50m
Distributable earnings $20.50m
Current dividend $0.299
Last 4 years’ dividends $0.252, $0.266, $0.275, $0.286
Earnings per share (EPS) $0.03183
Price / Earnings ratio 27.64 times
Market price of ordinary shares $0.86
Equity Beta 1.64
Replacement cost of non-current assets $622m
Disposal value of non-current assets $534m

Darnold PLC financial position statement

$m $m
Non-current assets 568
Current assets 64
Total assets 632

Equity Finance:
Ordinary shares (nominal value $0.50) 322
Reserves 46 368
Long-term liabilities:
3.80% bonds (redemption after 8 years) 222
Current liabilities 42
Total liabilities 632

Jones PLC expects to maintain an annual increase in distributable earnings of 2% due to

anticipated synergy as a result of the takeover. The company will also be able to sell
surplus non-current assets for $68m in four years’ time. The current estimates of cash
flows of Darnold PLC.is $19.8m, but these are expected to grow at an annual rate of 11%
in future years. The risk-free rate of return is 3.50% and the equity risk premium is 11%.
 Required:

a) Calculate the value of Darnold PLC using the following valuation methods:

i. Stock Market Valuation. (2 marks)

ii. All three asset-based valuation models. (3 marks)
iii. Price Earnings Ratio Valuation. (Using weighted average) (3 marks)
iv. Dividend Growth Model (4 marks)
v. DCF Valuation (Using Jones’s WACC) (3 marks)

b) Mergers and acquisitions are seen as playing a fundamental role within corporate finance
as a mechanism of external growth, where internal growth opportunities may be restricted
or limited. An extensive body of academic research has been performed within this area,
providing conflicting evidence as to whether mergers and acquisitions do indeed benefit
the acquiring firm’s shareholders. Critically evaluate whether mergers and acquisitions are
aligned with the key financial objective of shareholder wealth maximization, ensuring the
response incorporates relevant academic findings within this highly topical area of
financial management. ( 35
marks)

Guidance:

Within this section of the assessment students should initially demonstrate an ability to
place a valuation on a target company through utilizing a range of differing valuation
techniques deployed within merger and acquisition activity. The inclusion of all workings
and processes used to derive the final solutions must be included within the response. You
can only achieve maximum marks for calculations if all workings and processes are
clearly illustrated. Within the discursive / evaluative element of the assessment students
should demonstrate substantial understanding, knowledge, and an ability to critically
evaluate and analyze whether merger and acquisition activity is aligned with the
fundamental corporate financial objective of shareholder wealth maximization. The
evaluative element of the assessment should clearly demonstrate evidence of wider reading
that is sensibly integrated, and in-text referenced within the work as per Harvard
referencing requirements. Although the focus of the response should address the impact of
mergers and acquisitions upon the acquiring company’s shareholders wealth, other
concepts that can be briefly considered include the motives for mergers, how mergers are
financed, the merger process, and the key beneficiaries of mergers, although you should
attempt to remain focused in the context of specifically addressing the set question. The
response could also incorporate practical, real-life business examples, addressing whether
mergers have been successfully implemented, along with accessing empirical findings
regarding who benefits from the merger process.
Total for Question 3 – 50 marks
Generic Assessment Criteria – Undergraduate Bachelor’s degree
Categories
Grade Relevance Knowledge Analysis Argument and Structure Critical Evaluation Presentation Reference to Literature
86 –
The work examined is exemplary and provides clear evidence of a complete grasp of the knowledge, understanding and skills appropriate to the Level of the qualification. There is also unequivocal evidence
100%
showing that all the learning outcomes and responsibilities appropriate to that Level are fully satisfied. At this level it is expected that the work will be exemplary in all the categories cited above. It will demonstrate
a particularly compelling evaluation, originality, and elegance of argument, interpretation or discourse.

76-85% The work examined is excellent and demonstrates comprehensive knowledge, understanding and skills appropriate to the Level of the qualification. There is also excellent evidence showing that all the learning
outcomes and responsibilities appropriate to that level are fully satisfied. At this level it is expected that the work will be excellent in the majority of the categories cited above or by demonstrating particularly
compelling evaluation and elegance of argument, interpretation or discourse and there may be some evidence of originality

The work examined is of a high standard and there is evidence of comprehensive knowledge, understanding and skills appropriate to the Level of the qualification. There is also clearly articulated t evidence
70 –
demonstrating that all the learning outcomes and responsibilities appropriate to that level are satisfied At this level it is expected that the standard of the work will be high in the majority of the categories cited
75%
above or by demonstrating particularly compelling evaluation and elegance of argument, interpretation or discourse.

Directly relevant to the A substantial knowledge Good analysis, clear Generally coherent and logically May contain some distinctive Well written, with standard Critical appraisal of up-to-date
requirements of the of relevant material, and orderly structured, using an appropriate or independent thinking; may spelling and grammar, in and/or appropriate literature.
60 – assessment showing a clear grasp of mode of argument and/or begin to formulate an a readable style with Recognition of different
Pass

69% themes, questions and theoretical mode(s) independent position in acceptable format perspectives.Very good use of
issues therein relation to theory and/or source material. Uses a range of
Some attempt to Adequate knowledge of a Some analytical Some attempt to construct practice.
Sound work which Competently sources
Uses a variety of literature which
address the fair range of relevant treatment, but a coherent argument, but expresses a coherent written, with only includes some recent texts and/or
requirements of material, with intermittent may be prone to may suffer loss of focus position only in broad minor lapses from appropriate literature, though not
the assessment: may evidence of an description, or to and consistency, with issues at terms and in uncritical standard grammar, with necessarily including a substantive
50 – drift away narrative, which stake stated only conformity to one or acceptable
59% appreciation of its amount beyond library texts.
from this in less lacks clear vaguely, or theoretical more standard views format
significance Competent use of source
focused passages analytical mode(s) couched in simplistic of the topic
material.
purpose terms
Some correlation with Basic understanding of Largely descriptive or A basic argument is evident, but Some evidence of a view A simple basic style but Some up-to-date and/or
the requirements of the the subject but narrative, with little mainly supported by assertion and starting to be formed but with significant appropriate literature used. Goes
40 – assessment but there addressing a limited evidence of analysis there may be a lack of clarity and mainly derivative. deficiencies in expression beyond the material tutor has
49% are instances of range of material coherence or format that may pose provided. Limited use of sources
irrelevance obstacles for the reader to support a point.

Relevance to the A limited Heavy Little evidence of coherent Almost wholly Numerous Barely adequate use of literature.
requirements of understanding of a dependence on argument: lacks derivative: the writer’s deficiencies in Over reliance on material provided
the assessment narrow range of material description, development and may be contribution rarely expression and by the tutor.
35 – may be very and/or on repetitive or thin goes beyond presentation; the
39% intermittent, and may paraphrase, is simplifying writer may achieve
Fail

be reduced to its common paraphrase clarity (if at all) only by

vaguest and least using a simplistic or
challenging terms repetitious style
The evidence provided shows that the majority of the learning outcomes and responsibilities appropriate to that Level are satisfied – for compensation consideration.

30 – The work examined provides insufficient evidence of the knowledge, understanding and skills appropriate to the Level of the qualification. The evidence provided shows that some of the learning outcomes and
34% responsibilities appropriate to that Level are satisfied. The work will be weak in some of the indicators.

15-29% The work examined is unacceptable and provides little evidence of the knowledge, understanding and skills appropriate to the Level of the qualification. The evidence shows that few of the learning outcomes
and responsibilities appropriate to that Level are satisfied. The work will be weak in several of the indicators.
0-14% The work examined is unacceptable and provides almost no evidence of the knowledge, understanding and skills appropriate to the Level of the qualification. The evidence fails to show that any of the
learning outcomes and responsibilities appropriate to that Level are satisfied. The work will be weak in the majority or all of the indicators.