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This module, like all modules at Anglia Ruskin, is taught on the basis of achieving intended learning outcomes. On successful completion of the module, the student will be expected to be able to demonstrate the following:
Knowledge and understanding
Intellectual, practical, affective and transferable skills
LO 1. Understand how managers might use accounting information when communicating with each other and with the external environment
LO 2. Demonstrate an ability to assess the financial management strategies of an organisation
LO 3. Appraise the use of accounting techniques in the areas of planning and control within an organisation
LO 4. Interpret accounting information and provide analysis of the results
Part A: Long Term Investment:
Webster Plc is considering purchasing a new production machine. At present, it uses an old machine which can produce 8,000 “soothers” per week. This machine could be replaced with a new machine, which can produce 20,000 “soothers” per week. The new machine will cost £400,000. Removing the old machine and preparing the area for the new machine will cost €20,000. The new machine will occupy additional space in the factory which was planned to be rented out for £15,000 per annum payable in advance each year.
The company has already spent £40,000 on a market study to ascertain how many more “soothers” can be sold. Demand is expected to be 12,000 units per week for three years, after which a newer product will replace the “soother”. In the fourth year, the new machine would be sold for € 50,000. This sale is not expected to take place until later in the fourth year. Each “soother” sells for £7.00 and has a contribution to sales ratio of 0.2 per unit. The company works for 48 weeks in the year. Webster Plc normally expects a payback within two years and its cost of capital is 10% per annum.
Required: (1,500 equivalent)
Prepare a report to the Board of the Company which includes:
(a) Calculations of the payback and the net present value for the investment, based on the information given.
(b) A summary of the advantages and disadvantages of both the payback and NPV methods of investment appraisal, as applied to this case.
(c) A recommendation, with reasons, whether the machine should be purchased, including any reservations or non-financial considerations you may have about your recommendation.
Part B: Budgeting
The managing director has discussed with you her concerns over the lack of accuracy of the financial budgets that have been prepared for the last two years, as actual results have been significantly different. Traditionally, the company has adopted a “top down” approach where a small group of senior executives have taken sole responsibility for preparing the budget.
She has asked for your opinion on the advantages and disadvantages of a wider participation in the budgeting process.
Required: (900 words)
In the form of a memo to the managing director, summarise the main advantages and disadvantages of wider participation in the budgeting process, supporting your analysis with examples of current corporate practice.
CASE STUDY, 2400 WORDS
1, 2, 3 & 4
Grading Form for the Case Study
Introduction, structure and referencing
An outline of the report, appropriate and informative introduction, report structure clear and logical, academic references properly used
Payback and NPV Calculations
Calculations accurate, clear workings, concise layout
Advantages and Disadvantages
Concise analysis and summary for both appraisal methods, not in table form, relevant to the case
Recommendation and Relevant Comments
Clear recommendation based on the decision rules, relevant reservations and observations, non-financial considerations
Memo format, concise opening, structure clear and logical, academic references properly used
Clearly and concise explained, but not in table format
Examples of Current Corporate Practice
Based on student research, examples, references to what major firms are using
In assigned groups, investigate the progress of a company over a 5 year period using ratio analysis and present your findings highlighting the limitations of using ratio analysis.
Group Presentation, 15 Minutes
1 & 4
Grading Form for Group Presentations
Marking and Feedback Sheet Marker`s Comments
Relevance of the Content 40%
Use of visual aids 10%
Time Management 10%
Group Coordination and team work 20% - (by peer assessment see the attached grid.)
If you are required to complete a re-sit assessment for this module, please ensure you are aware of the assessment (and the date if an exam or in-class test) as it will be different to the original assessment.
Thompson Plc is a listed company, which manufactures electrical components for surgical equipment used in hospital operating theatres.
The managing director had recently returned from an industry exhibition, where the latest technological developments were showcased. In subsequent discussions with you, the financial director, he has raised some concerns as to the way the company currently evaluates its investment opportunities. “You cannot believe the pace of change in our industry. Tomorrow’s technology is already here today! With product lifecycles being so short, the use of discounting appraisal techniques such as NPV or IRR are no longer relevant for us.”
You are not fully in agreement with his assertions and you decide to reflect, research and clarify your thoughts in writing.
In the form of a memo to the managing director:
a) Summarise the different investment appraisal techniques that can be used to evaluate projects
b) Comment on the advantages and disadvantages of each technique, supporting your discussion with basic numerical examples
c) Based on your analysis, conclude as to the validity of the managing director’s assertion.
The following week, the managing director returns to your office to discuss a further concern. “Why are we so bad at budgeting?! We start the process 6 months before the start of the year, involve all the right people and produce what should be an accurate forecast of our expected performance – but we are rarely close. Our investors are getting concerned.”
Whilst you have to agree that the past two year’s budgets bore little resemblance to actual results, you suspect that a whole new approach might be the answer.
Again, you decide to reflect on the problem, research and clarify your thoughts in writing.
In the form of a memo to the managing director
a) Outline different types of budgets that companies can adopt
b) Comment on the applicability and the suitability of each type
c) Conclude whether Thompson Plc would benefit from a change in the type of budget used, also referring to current corporate practice.
Case Study, 2400 Words
Grading Form for the Resit Case Study
Investment Appraisal Techniques
Different techniques concisely described
Advantages and Disadvantages
Critical evaluation of the different techniques, commenting on applicability
Use of Own Numerical Examples
Simple numerical appraisal examples in support of evaluation above
Clear conclusion based on the analysis above and relevant to the case, key issue being the short product life cycles
Types of Budget and evaluation
Concise descriptions of different types of budgets, perhaps illustrated with numeric examples, comments on suitability and applicability
Investigate the progress of a company over a 5 year period using ratio analysis and present your findings highlighting the limitations of using ratio analysis.
Individual Presentation, 15 minutes
It is recommended that you prepare and submit your (re)assignment in line with the assessment submission guidance given above.