Contrast the appropriateness of the different sources of finance to a business..
Introduction to Finance
Date for Submission: Please refer to the timetable on ilearn
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As part of the formal assessment for the programme you are required to submit an Introduction to Finance assignment. Please refer to your Student Handbook for full details of the programme assessment scheme and general information on preparing and submitting assignments.
After completing the module, you should be able to:
1. Contrast the appropriateness of the different sources of finance to a business.
2. Explain the implications of finance as a resource within a business.
3. Produce simple financial statements in accordance with accepted principles.
4. Use financial information for decision making purposes.
5. Demonstrate a confident use of the financial terminology and conventions in communicating results.
Your assignment should include: a title page containing your student number, the module name, the submission deadline and a word count; the appendices if relevant; and a reference list in Arden University (AU) Harvard format. You should address all the elements of the assignment task listed below. Please note that tutors will use the assessment criteria set out below in assessing your work.
You must not include your name in your submission because Arden University operates anonymous marking, which means that markers should not be aware of the identity of the student. However, please do not forget to include your STU number.
Maximum word count: 3,000 words
Please note that exceeding the word count by over 10% will result in a reduction in grade by the same percentage that the word count is exceeded.
You are the Chief Financial Officer at Touchdown Sports Inc., a leading manufacturer of protective equipment for use in contact sports.
The company manufactures a range of products, including shoulder pads for use by players of American football. These pads comprise a hard plastic shell with foam padding underneath, metal rivets and elastic straps. Touchdown Sports Inc. sells all of its products to retailers on a credit basis.
Estimated annual usage of hard plastic in Touchdown Sports Inc’s manufacturing process is 27,000 kilograms. This is used evenly throughout the year other than during July and August, when production increases to meet demand due to the start of the American football season in September, and during November, when production increases to meet demand prior to the Christmas holiday in December.
Inventory holding costs for hard plastic are estimated to be $1.75 per kilogram per year. The estimated cost of placing and processing each order of hard plastic is $14.
Throughout the year, it is estimated that hard plastic will cost an average of $0.90 per kilogram. However, forecast fluctuations in demand mean that the cost of hard plastic could vary from a maximum of $1.90 per kilogram and a minimum of $0.75 during the year.
Touchdown Sports Inc. imports hard plastic from Guangzhou Productions plc, China. Recent disputes with this supplier have led Touchdown Sports Inc. to maintain a ‘buffer’ inventory to manage the risk of disruption to this supply. Guangzhou Productions plc offers a 7.5% bulk purchase discount on orders of hard plastic of 10,000 kilograms or more.
The company’s approach to inventory management was discussed at a recent meeting of Touchdown Sports Inc’s senior executive team. Grace Rodriguez, Chief Executive at Touchdown Sports Inc., is an advocate of just-in-time (JIT) inventories management. Grace has questioned the company’s current approach to the management of its inventory of hard plastic and has commented:
Holding inventories results in costs for the company. We could avoid these costs if we introduce a JIT approach to the management of our inventory of hard plastic. Inventories management models and information technology are available to help us.
Maria Cousins, Chief Operating Officer at Touchdown Sports Inc., has pointed out that the successful management of inventories involves a number of practical issues. Maria has commented:
Inventories management models and information technology are useful, but I am sure that there are other issues that we need to consider. I would like to know more about the practical implications of managing inventories.
(a) Calculate the economic order quantity (EOQ) for hard plastic.
(b) Calculate the total annual cost of hard plastic.
(c) Critically evaluate Touchdown Sports Inc’s decision to use the EOQ model as part of its approach to the management of inventories.
(d) Advise Touchdown Sports Inc’s senior executive team on the comments made by Grace Rodriquez and Maria Cousins. Your advice should include an explanation of the costs of holding inventories, the costs of failing to manage inventories properly and the practical implications of managing inventories.
(Question 1 Total marks: 25)
(LO: 1, 2 and 4)
You are a Senior Analyst at Eagles LLP, a major advisory and professional services firm. One of your clients is Touchdown Trips Inc., a company that provides luxury package tours to watch sports events in North America.
Touchdown Trips Inc. uses a luxury private jet aeroplane to carry clients to their destination. The company is planning to invest in a new luxury jet. Two possible investment options have been identified: the Gulfstream G650ER (option A) and the Boeing BBJ Max 7 (option B). Each option has an expected life of five years, after which the selected aeroplane will be replaced by a new luxury private jet aeroplane. Sufficient funding is available to finance only one of the options.
Option A Option B
USD ($000 USD ($000)
Initial cost (year 0) 51,000 76,500
Scrap value (year 5) 40,110 60,120
Forecast net cash inflows
Year 1 3,200 3,900
Year 2 3.300 3,600
Year 3 3,100 3,300
Year 4 3,000 3,100
Year 5 2,900 2,600
Assume that all cash flows occur at the end of the respective year.
Touchdown Trips Inc. has a cost of capital of 12 per cent.
Touchdown Trips Inc. have requested that the payback period and accounting rate of return techniques be used to support this capital investment decision. The company’s approach to investment appraisal was discussed at a recent meeting of Eagles LLP’s senior executive team. Bill Brady, Senior Partner at Eagles LLP is keen for the managers of Touchdown Trips Inc. to understand the characteristics of capital investment decisions: Bill has commented:
We need to ensure that the managers at Touchdown Trips Inc. understand the characteristics of capital investment decisions. This might lead them to accept the use of capital investment appraisal techniques other than payback and accounting rate of return.
Xiaolin Peng, Head of Asset Management at Eagles LLP, has highlighted that the internal rate of return technique may be suitable in this case. Xiaolin has commented:
Internal rate of return is the rate of return that an investment project yields, taking account of the fact that cash may be flowing in and out of the project at various points in its life. If we explain the advantages and disadvantages of internal rate of return to the managers at Touchdown Trips Inc., this might encourage them to accept the use of this technique.
(a) Calculate the payback period for both option A and option B.
(b) Calculate the accounting rate of return for both option A and option B. Assume that the only difference between cash flow and profit is the depreciation charge.
(c) Critically evaluate the accounting rate of return technique.
(d) Advise the senior executive team on the comments made by Bill Brady and Xiaolin Peng. Your advice should include an explanation of the characteristics of investment appraisal decisions and the advantages and disadvantages of the internal rate of return technique.
(Question 2 Total marks: 25)
(LO: 3, 4 and 5)
Agro Co.’s income statement for the year ended 31 March 2019 and statements of financial position at 31 March 2019 and 2018 were as follows:
Agro Co.: Income Statement for the year ended 31 March 2019
Cost of Sales
Other income: interest received 33
Distribution costs (187)
Administrative expenses (309)
Interest costs (75)
Profit before tax 775
Income tax expense (157)
Profit for the year 618
Statements of Financial Position as at 31 March 2019 and 2018
Property, plant and equipment (PPE)
Intangible assets 425 375
Investments 0 95
Trade receivables 1010 315
Short-term investments 75 0
Cash at Bank Total Assets 452 1
Current liabilities Trade payables
Bank overdraft 143 98
Non-current liabilities Long-term loans
Total Net Assets
Share capital (£1 ordinary shares) 1950 1550
Share premium account 260 150
Revaluation surplus 70 51
Retained earnings 618 200
Total Equity 2898 1951
a) Calculate for the financial year ended 31 March 2019 and, where possible, for 31 March 2018, the following ratios:
i) Gross profit margin ii) Assets usage iii) Current ratio iv) Acid test
v) Inventories holding period
vi) Debt to Equity ratio
b) Critically explain the importance of considering the audience for financial statement analysis.
(Question 3 Total 25 Marks)
(LO: 3, 4 and 5)
An international regulatory framework for accounting is required in order to ensure that financial statements can be relied upon and that the information within financial statements is useful and relevant.
Corporate governance is the system by which organisations are directed and controlled. Corporate governance is important because it affects how decision makers act, how they can and should be monitored and how they can be held to account for their decisions and actions.
(a) Explain the role of each of the following organisations in the international regulatory framework for accounting: IFRS Foundation; IFRS Advisory Council; International Accounting Standards Board: IFRS Interpretations Committee.
(b) Critically discuss the role of audit committees in corporate governance
(Question 4 Total marks: 25)
(LO: 4 and 5)
END OF QUESTIONS
You have the opportunity to submit a draft response to question one to receive formative feedback.
The feedback is designed to help you develop areas of your work and it helps you develop your skills as an independent learner.
If you are a distance learning student, you should submit your work, by email, to your tutor, no later than 2 weeks before the actual submission deadline. If you are a blended learning student, your tutor will give you a deadline for formative feedback and further details.
Formative feedback will not be given to work submitted after the above date or the date specified by your tutor – if a blended learning student.
You MUST underpin your analysis and evaluation of the key issues with appropriate and wide ranging academic research and ensure this is referenced using the AU Harvard system. The My Study Skills Area contains the following useful resources:
Guide to Harvard Referencing
Guide to Harvard Citation
You must use the AU Harvard Referencing method in your assignment.
Students are required to indicate the exact word count on the title page of the assessment.
The word count excludes the title page, executive summary, reference list and appendices. Where assessment questions have been reprinted from the assessment brief these will also be excluded from the word count. ALL other printed words ARE included in the word count. Printed words include those contained within charts and tables. See ‘Word Count Policy’ on the homepage of this module for more information.
Assignments submitted late will not be accepted and will be marked as a 0% fail.
Your assessment should be submitted as a single Word (MS Word) or PDF file. For more information please see the “Guide to Submitting an Assignment” document available on the module page on iLearn.
You must ensure that the submitted assignment is all your own work and that all sources used are correctly attributed. Penalties apply to assignments which show evidence of academic unfair practice. (See the Student Handbook which is on the homepage of your module and also in the Induction Area).
Assessment Criteria (Learning objectives covered – all)
Level 4 is the first stage on the student journey into undergraduate study. At Level 4 students will be developing their knowledge and understanding of the discipline and will be expected to demonstrate some of those skills and competences. Student are expected to express their ideas clearly and to structure and develop academic arguments in their work. Students will begin to apply the theory which underpins the subject and will start to explore how this relates to other areas of their learning and any ethical considerations as appropriate. Students will begin to develop self-awareness of their own academic and professional development.
Grade Mark Bands Generic Assessment Criteria
(1) 80%+ Outstanding performance which demonstrates the ability to analyse the subject area and to confidently apply theory whilst showing awareness of any relevant ethical considerations. The work shows an excellent level of competence and confidence in managing appropriate sources and materials, initiative and excellent academic writing skills and professional skills (where appropriate). The work shows originality of thought.
79% Excellent performance which demonstrates the ability to analyse the subject and apply theory whilst showing some awareness of any relevant ethical considerations.
The work shows a high level of competence in managing sources and materials, initiative and very good academic writing skills and professional skills (where appropriate). The work shows originality of thought.
69% Very good performance which demonstrates the ability to analyse the subject and apply some theory. The work shows a good level of competence in managing sources and materials and some initiative. Academic writing skills are good and expression remains accurate overall. Good professional skills (where appropriate). The work shows some original thought.
Lower second (2:2) 50-
59% A satisfactory to good performance which begins to analyse the subject and apply some underpinning theory. The work shows a sound level of competence in managing basic sources and materials. Academic writing skills are satisfactory and expression remains accurate overall although the piece may lack structure. Satisfactory professional skills (where appropriate). The work lacks some original thought.
49% Basic level of performance in which there are some omissions in understanding the subject, its underpinning theory and ethical considerations. The work shows a basic use of sources and materials. Academic writing skills are limited and there are some errors in expression and the work may lack structure overall. There are some difficulties in developing professional skills (where appropriate). The work lacks original thought and is largely imitative.
39% Limited performance in which there are omissions in understanding the subject, its underpinning theory and ethical considerations. The work shows a limited use of sources and materials. Academic writing skills are weak and there are errors in expression and the work may lack structure overall. There are difficulties in developing professional skills (where appropriate). The work lacks original thought and is largely imitative.
29% and below A poor performance in which there are substantial gaps in knowledge and understanding, underpinning theory and ethical considerations.
The work shows little evidence in the use of appropriate sources and materials. Academic writing skills are very weak and there are numerous errors in expression. The work lacks structure overall. Professional skills (where appropriate) are not developed. The work is imitative.
Page 13 of 13
Contrast the appropriateness of the different sources of finance to a business.