FINANCIAL MANAGEMENT

Module Title: FINANCIAL MANAGEMENT

 

 

 

 

Knowledge

 

  1. Critical understanding of the key strategic decisions that a business may have to make and appreciated how accounting and finance can assist in making and evaluating those decisions.

 

  1. Critical understanding of specific analytical skills in key decision areas within strategy and finance at local and international level.

 

  1. Critical understanding of the limitations of the current state of financial theory in making strategic business decisions.

 

 

Skills

 

  1. Competence in applying the key valuation concepts and methodologies of financial decision making to contribute to the wider decision making of the organisation.

 

 

Learning outcomes:

The assignment covers all module learning outcomes.

 

 

Requirements:

 

 

Select and attempt any TWO from the following three questions. Each part that is attempted will carry a maximum mark of 50%.

 

Assessment guideline: 

 

  • Weighting – 100% of the marks for this module
  • This is an individual assignment of 3,000 words. (+ 10%) excluding appendices, reference list, and bibliography.

 

  • The assignment must be submitted ONLINE through TURNITIN© by the due date. Only assessments submitted through TURNITIN© will be marked. Any other submission including submission to the library in hard copy will be treated as a non-submission.

 

Students should approach this assignment as an academic essay, weighing the arguments for and against each issue, making comment on the literature and drawing logical conclusions. Academic referencing using the Harvard referencing approach is a key requirement of the assignment to demonstrate wider reading and to underpin the discussions, ensuring they have relevant depth. Students are encouraged to be inquisitive and innovative in their approach as to what should be included in this report.

 

 

The University policy on cheating collusion and plagiarism will be applied to this piece of work.

 

 

 

 

Part A

 

ABC Ltd has provided the following figures for two investment projects, only one of which may be chosen.

Project X                     Project Y

    £                                  £   

Initial outlay                                                   230,000                       200,000

 

Profit for year 1                                              80,000                         30,000

2                                              60,000                         30,000

3                                              50,000                         60,000

4                                              30,000                         80,000

 

Estimated resale value at end of year 4            60,000                         44,000

 

Profit is calculated after deducting straight line depreciation. The business has a cost of capital of 10%.

 

Required

 

  1. Calculate the payback period, net present value, accounting rate of return and the internal rate of return for each project, and provide brief recommendations as to what project needs to be chosen based on the following:
  2. The Payback Period.
  3. The Accounting Rate of Return/Return on Capital Employed.
  • The Net Present Value.
  1. The Internal Rate of Return (to two decimal places)

(25 marks) 

              

  1. Critically evaluate the benefits and limitations of each of the different investment

appraisal techniques.                                                                                  (25 marks)

 

In this section students should demonstrate understanding, knowledge, and an ability to critically evaluate the differing theoretical viewpoints associated with differing capital appraisal methods. The response should attempt to incorporate a critical perspective through relevant academic referencing, rather than overly describing the differing models.

 

                                                                                                                              (Total – 50%)

 

 

 

 

 

 

 

 

 

 

 

 

 

Part B

 

Company Y has 5 million shares in issue and Company Z 11 million. On day 1 the market value per share for Company Y is £4.50, and for Company Z is £6.00. On day 2, the management of Company Z decides at a private meeting, to make a cash takeover bid for Company Y at a price of £5.50 per share. The takeover will produce large operating savings with a value of £8 million. On day 4, Company Z publicly announces an unconditional offer to purchase all the shares of Company Y at a price of £5.50 per share with settlement on day 20. Details of the large savings are not announced and are not public knowledge. On day 12, Company Z announces details of the savings, which will be derived from the takeover.

 

Required:

 

  1. Ignoring tax and the time-value of money between days 1 and 20, and assuming the details given are the only factors having an impact on the share prices of Company Y and Z, determine the day 2, day 4, and day 12 share prices of Company Y and Company Z if the market is:

 

  1. Semi-Strong Efficient.

 

  1. Strong Form Efficient.

 

In each of the following circumstances:

 

  1. The purchase consideration is cash as specified above, and
  2. The purchase consideration, decided upon on day 2, and publicly announced on day 4, is one newly issued share of Company Z for each share of Company Y.

 

                                                                                                                                  (15 marks)

 

  1. Academics have argued that market efficiency can be defined using three differing strengths; weak form, semi-strong form, and strong form. Critically evaluate the three differing strengths of market efficiency ensuring the response is supported with relevant academic evidence.

                                                                                                                                (35 marks)

 

 

In this section students should demonstrate understanding, knowledge, and an ability to critically evaluate the differing theoretical viewpoints associated with differing structure of market efficiency. The response should attempt to incorporate a critical perspective through relevant academic referencing, rather than overly describing the differing models. Attempting to evaluate within a practical, real-life business context through investigation of academic empirical findings will assist in developing the response.

 

                                                                                                                              (Total – 50%)

 

 

 

 

Part C

 

It is 31 January 2020 and the managers of Blue Plc. are considering a change in the company’s dividend policy. Earnings per share for 2019 for the company were 60p, and the finance director has said that he expects this to increase to 65p per share for 2020. The increase in earnings per share is in line with market expectations of the company’s performance. The pattern of recent dividends, which are paid on 31 December is as follows:

 

Year 2019 2018 2017 2016 2015 2014
Dividend per Share (pence)  

35.0

 

32.7

 

30.6

 

29.2

 

27.6

 

26.2

 

The managing director has proposed that 60 per cent of earnings in 2019 and subsequent years should be retained for investment in new product development. It is expected that, if this proposal is accepted, the dividend growth rate will be 12 per cent. Clear PLC’s cost of capital is estimated to be 16 per cent.

 

Calculate the share price of Clear PLC in the following circumstances.

 

  • The company decides not to change its current dividend policy.

                       (9 marks)                                                                          

  • The company decides to change its dividend policy as proposed by the managing director and announces the change to the market.                                                                                                                 

(6 marks)

(c) Does the dividend policy adopted by a company impact upon the market value of that company? Academic findings within this area have provided conflicting evidence with two distinct theoretical schools of thought; one supporting dividend relevance and the other dividend irrelevance. Critically analyse and evaluate the differing theoretical viewpoints, ensuring the response is developed through incorporating relevant academic research that has been performed within this area.                                                                 (35 marks)

  

In this section students should demonstrate knowledge, understanding, and an ability to critically evaluate and analyse the main dividend relevance and irrelevance theoretical viewpoints. The response should be developed through use of a wide range of relevant academic literature, referenced as per Harvard referencing requirements. The inclusion and ability to integrate real-life practical business examples, addressing whether differing companies adopt a dividend relevance or irrelevance standpoint would assist in developing the response in greater depth.  

                                                                                                                             (Total – 50%)

 

 

The University policy on cheating collusion and plagiarism will be applied to this piece of work.

 

Guidance:

 

Students should approach this assignment as an academic essay, weighing the arguments for and against each issue, making comment on the literature and drawing logical conclusions. Academic referencing using the Harvard referencing approach is a key requirement of the assignment to demonstrate wider reading and to underpin the discussions, ensuring they have relevant depth.

 

 

Marking Guide

 

The learning outcomes for this module assessed by this piece of work are:

 

 

Knowledge

 

  1. Examined and critically evaluated the key strategic decisions that a business may have to make and appreciated how accounting and finance can assist in making and evaluating those decisions.

 

  1. A critical understanding of specific analytical skills in key decision areas within strategy and finance at local and international level

 

  1. A critical understanding of the limitations of the current state of financial theory in making strategic business decisions

 

Skills

 

  1. Applied the key valuation concepts and methodologies of financial decision making in order to contribute to the wider decision making of the organisation

 

 

Generic Assessment Criteria – Undergraduate Bachelor’s degree

            Categories      
    Grade Relevance Knowledge Analysis Argument and Structure Critical Evaluation Presentation Reference to
    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
    100%
    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 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    
                   
    70 – 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 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
    75%
    categories cited 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 Well written, with Critical appraisal of up-to-date
      requirements of the of relevant material, and orderly structured, using an appropriate distinctive or independent standard spelling and and/or appropriate literature.
  Pass 60 – assessment showing a clear grasp of   mode of argument and/or thinking; may begin to grammar, in a readable Recognition of different
    themes, questions and   theoretical mode(s) formulate an independent style with acceptable perspectives. Very good use of
  69%    
        issues therein     position in relation to theory format source material. Uses a range of
                   
      Some attempt to Adequate knowledge of Some analytical Some attempt to construct Sound work which Competently Uses a variety of literature which
      address the a fair range of relevant treatment, but a coherent argument, but expresses a coherent written, with only includes some recent texts
      requirements of material, with may be prone to may suffer loss of focus position only in broad minor lapses from and/or appropriate literature,
      the assessment: may description, or to and consistency, with issues at terms and in uncritical standard grammar, with
    50 – intermittent evidence of though not necessarily including
    drift away narrative, which stake stated only conformity to one or acceptable
    an appreciation of its a substantive
    59%
    from this in less lacks clear vaguely, or theoretical more standard views format
    significance amount beyond library texts.
     
      focused passages analytical mode(s) couched in simplistic of the topic  
          Competent use of source
          purpose Terms    
              material.
                 
      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 starting to be formed but with significant appropriate literature used. Goes
    40 – assessment but there addressing a limited evidence of analysis and there may be a lack of clarity mainly derivative. deficiencies in beyond the material tutor has
    49%
    are instances of range of material   and coherence   expression or format that provided. Limited use of sources
         
      irrelevance         may pose obstacles for to support a point.
                   
      Relevance to the A limited Heavy Little evidence of coherent Almost wholly Numerous Barely adequate use of
      requirements of understanding of a dependence on argument: lacks derivative: the writer’s deficiencies in literature. Over reliance on
      the assessment narrow range of material description, development and may be contribution rarely expression and material provided by the tutor.
  Fail 35 – may be very   and/or on repetitive or thin goes beyond presentation; the  
  39% intermittent, and may   paraphrase, is   simplifying writer may achieve  
  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- 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
29% responsibilities appropriate to that Level are satisfied. The work will be weak in several of the indicators.
   
0- 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
14% learning outcomes and responsibilities appropriate to that Level are satisfied. The work will be weak in the majority or all of the indicators.