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Module Title: Financial Analysis for ManagersModule Code: 7ACCN018WModule Status: Core
Feedback Method:Mixture of Formative and Summative Assessment Feedback. Students receive comments on their ability to link theory into practice in terms of applying and interpreting “financial ratio analysis” to selected companies.
Assignment Outline:This ‘Authentic Assignment’ contributes to 60% of the overall mark for the module. The assignment will be undertaken on an individual basis.All your Excel calculations/sheets MUST be copied and pasted into one single MS Word document which will contain your answers to ALL the requirements of this assessment.Please start your answer to each requirement on a new page. So, a new page for requirement (a), a new page for requirement (b), and so on.
ScenarioJohn Harrison who is 61, was recently made redundant from the company where he worked as a sales manager for several years. He is now planning to start a sandwich business from 1st January 2023 with the intention of selling it as a going concern in four years’ time when he intends to retire in sunny Spain.The financing for this business comes in part with the £42,000 redundancy pay that he received from the company. Any additional finance needed for this business could be obtained by way of an agreed bank loan. Barclays bank has agreed in principle to provide John with a £20,000 four-year 7.9% interest only loan where the loan capital will have to be repaid in full at the end of the four-year period.John’s sister, Tracy, has shown an interest in John’s idea of setting up a sandwich business, and can invest £20,000 so that John need not take out the bank loan if John decides to involve her in the business.John is unsure as to whether the business should be in the form of a partnership or a limited company.
Average sales in the first year based on the business operating seven days a week are likely to be:i. £185,000 with a probability of 23%ii. £212,000 with a probability of 48%iii. £248,000 with a probability of 29%
Required: (Please start your answer to each requirement on a separate page)a) Discuss the advantages and disadvantages of setting up the business as:i. A partnershipii. A private limited company (Word limit 450 words +/- 10%) (15 marks)
b) i. Produce a cash budget for the first year of the business. Assume John ultimately decides to work as a sole trader and borrows £20,000 from Barclays bank at 7.9% on an interest-only basis, and with the loan capital to be repaid in full at the end of the four-year period. (20 marks)ii. Suggest, in general terms, five methods by which a business can deal with short-term cash flow problems. (5 marks) (Word limit 150 words +/- 10%)
c) Briefly discuss the functions of budgets in organisations, and the difficulties that start-up businesses face when attempting to draw up budgets. (10 marks) (Word limit 300 words +/- 10%)
d) Calculate the following for the first year of the business:i. Budgeted profit for the yearii. BEPiii. Margin of safety (10 marks)
e) Assuming this is a four-year project, and ignoring all taxation implications, calculate the following: (Discount rate at 10%)i. The Net Present Value (NPV)ii. The Internal Rate of Return (IRR) – Use Excel functioniii. The Payback Period (25 marks)
f) Discuss the advantages and limitations of each of the following project appraisal methods:i. Paybackii. Accounting Rate of Return (ARR)iii. Net Present Value (NPV) (15 marks) (Word limit 450 words +/- 10%)
(Total: 100 marks)
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