MGT104 Fundamentals of Financial Decision Making L4 Assignment Brief | UOS

MGT104 Assessment Brief

This Assessment is in three parts, please answer all elements.

Part A carries a weighting of 50% and students should write 1,000 words (+ or – 10%).
Note: trial balance, financial statement of performance and financial statement of position can go in the appendix and do not count toward word count.

Part B carries a weighting of 10%.
Note: calculations can go in the appendix and do not count toward word count.

Part C carries a weighting of 40% and students should write 1,000 words (+ or – 10%). 
Note: calculations can go in the appendix and do not count toward word count.

As the weightings for the tasks are not identical, this should be considered in word allocation.

Part A.

Section 1

Lee is a sole trader who started trading on 1st January 2023. As a trainee financial manager, you have been presented with a summary of transactions that occurred during the first year of trading.

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Transaction	Details
1	Lee (the owner) introduced £200,000 of equity, which was paid into a bank account opened in the name of the business.
2	Inventories totalling £50,000 were bought using cash.
3	Equipment was bought on 1/1/2023 for £30,000. This is expected to be used in the business for five years and then to be sold for £5,000.
4	Bought inventories costing £40,000 on credit.
5	Premises were rented from 1/1/2023 at an annual rental of £50,000. During the year, rent of £75,000 was paid to the owner of the premises.
6	The electricity bill for the final quarter was not received before the accounts were prepared. The business estimated the electricity expense would be £7,500 for the final quarter, resulting in a total estimated electricity expense for the year of £30,000, which was paid in cash. Just before the accounts were finalised, the electricity bill for the final quarter was received for an amount of £9,000. The supplier will allow Lee to pay the balance when the next quarterly payment is due.
7	Paid general expenses of £25,000
8	Sales revenue on credit totaled £75,000 (cost of sales £47,000)
9	Cash sales revenue totaled £70,000 (cost of sales £42,000)
10	Lee withdrew £30,000 in cash for personal use.
11	Payment of trade payables totaled £30,000
12	Receipts from trade receivables totaled £38,000
13	During the final quarter, Lee purchases advertising on google ads. The cost of the advertising is £5,000 The expense is recognised immediately; payment for the airtime is delayed until next accounting year.

The business uses the straight-line method for depreciating non-current assets.

Required:

i. Record the transactions using double-entry bookkeeping* and prepare a trial balance.

Note (*double entry (t-accounts) workings do not need to be submitted with your assignment.) (15 marks)
 
ii. Prepare an statement of performance and a statement of financial position for the year end. (10 marks)

Section 2

Profit and cash generated during an accounting period are rarely equal. Discuss the importance of cash management in general and why liquidity is vital for a start-up business. (25 marks)

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Part B

Musicmotors Ltd is a supplier of digital radios to car manufacturers. The selling price is £90 each. Next year the business plans to make and sell 30,000 digital radios. The business’s costs are as follows:

Manufacturing

Variable materials    £30 per radio
Variable labour    £21 per radio
Other variable costs    £18 per radio
Fixed costs    £120,000 per year

Administration and selling

Variable costs    £4.50 per radio
Fixed costs    £90,000 per year

Required:

• Calculate the Breakeven Point (BEP) for next year, both in quantity of radios and sales value. (3 marks)
• Calculate the margin or safety for next year, expressed both in quantity of radios and sales value. (3 marks)
• If Musicmotors Ltd wants to earn a £1,500,000 profit, and radio sales are 25,000, what price should it charge for the radio? (4 Marks).

Part C

Section 1

Hamilton plc is considering a major investment project. The initial outlay of £-2,500,000 will, in subsequent years, be followed by positive cash flows, as shown below. (These occur on the anniversary dates.)

Year	1	2	3	4	5	6
Cash flows	300,000	520,000	780,000	930,000	1,110,000	1,400,000

After the end of the sixth year, this business activity will cease, and no more cash flows will be produced. The initial £-2,500,000 investment in plant and machinery is to be depreciated over the six-year life of the project using the straight-line method. These assets will have no value after Year 6.

The management estimates that the cash inflows shown above are also an accurate estimation of the profit before
depreciation for each of the years. They also believe that the appropriate discount rate to use for the firm’s projects is 13 per cent per annum.

The board of directors are used to evaluating project proposals on the basis of a payback rule, which requires that all investments achieve payback in five years.

As the newly appointed executive responsible for project appraisal, you have been asked to assess this project using several different methods. Do this in the following sequence

• Calculate the payback period. (3 Marks)
• Calculate an accounting rate of return (4 Marks)
• Calculate the internal rate of return (4 Marks)
• Calculate the net present value (4 Marks)

Section 2

‘Wealth maximisation cannot be achieved without accurate information between management, HRM, marketing and finance departments’. Pick at least one of these departments and discuss how good communication with the financial manager can improve the probability of wealth maximisation