Business & Finance homework help.
BPP Coursework Cover Sheet
Please use the table below as your cover sheet for the 1st page of the submission. The sheet should be before the cover/title page of your submission.
| Programme |
MSc Management with Streams |
| Module name |
Financial Decision Making |
| Schedule Term |
Spring 2020 |
| Student Reference Number (SRN) |
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| Report/Assignment Title |
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| Date of Submission (Please attach the confirmation of any extension received) |
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| Declaration of Original Work: I hereby declare that I have read and understood BPP’s regulations on plagiarism and that this is my original work, researched, undertaken, completed and submitted in accordance with the requirements of BPP School of Business and Technology. The word count, excluding contents table, bibliography and appendices, is words. Student Reference Number: Date: |
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| By submitting this coursework you agree to all rules and regulations of BPP regarding assessments and awards for programmes. Please note, submission is your declaration you are fit to sit. BPP University reserves the right to use all submitted work for educational purposes and may request that work be published for a wider audience. BPP School of Business and Technology |
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MSc Management with Streams
| Financial Decision Making | |
| [FIN 7040] | |
Coursework Assessment Brief
Spring Term 2020
Submission deadline: 23:59hrs April 10th
Submission mode: Turnitin online access
1. General Assessment Guidance
- Your summative assessment for this module is made up of two elements: this Coursework submission which accounts for 80% of the marks and an Online Quiz (MCQs) which accounts for 20% of the marks.
- The deadline for submission of both elements is 23:59 hrs on 10th April 2020. Please note late submissions will not be marked.
- You are required to submit all elements of your assessment via Turnitin online access. Only submissions made via the specified mode will be accepted and hard copies or any other digital form of submissions (like via email or pen drive etc.) will not be accepted.
- For coursework, the submission word limit is 3,500 You must comply with the word count guidelines. You may submit LESS than 3,500 words but not more. Word Count guidelines can be found on your programme home page and the coursework submission page.
- Do not put your name or contact details anywhere on your submission. You should only put your student registration number (SRN) which will ensure your submission is recognised in the marking process.
- A total of 100 marks are available for this module assessment, and you are required to achieve minimum 50% to pass this module.
- You are required to use only Harvard Referencing System in your submission. Any content which is already published by other author(s) and is not referenced will be considered as a case of plagiarism.
You can find further information on Harvard Referencing in the online library on the VLE.
You can use the following link to access this information: http://bpp.libguides.com/Home/StudySupport
- BPP University has a strict policy regarding authenticity of assessments. In proven instances of plagiarism or collusion, severe punishment will be imposed on offenders. You are advised to read the rules and regulations regarding plagiarism and collusion in the GARs and MOPP which are available on VLE in the Academic registry section.
- You should include a completed copy of the Assignment Cover sheet. Any submission without this completed Assignment Cover sheet may be considered invalid and not marked.
2. Assessment Brief
2.1. Case Study – ROAST LTD
Your role
You work in the finance department of Starbucks UK. Your Chief Financial Officer (CFO) has asked you to review the financial statements and other material sourced for you below, of Roast Ltd, an independent UK chain of coffee houses. The objective is to assist her in evaluating the attractiveness of the company as a target for acquisition by Starbucks.
Task
Prepare a 3,500 word business report for your CFO providing analysis and business advice to address the requirements below.
Format: business report with headings, sub-headings and paragraphs 1 mark
Executive summary – key highlights/findings drawn from each task below to answer the central question: should Starbucks acquire Roast Ltd or not? 5 marks
Note: no introduction or conclusion is required except where stated as part of the requirements. No marks will be awarded for an introduction or conclusion.
Part 1: Industry Review
Using your own independent research, provide a top-line review (in bullet point format) of the current UK coffee house industry. This should include a summary of who the key players are, how well it is performing, and any challenges or opportunities that you find. 5 marks
Part 2: Business Performance Analysis
You will need to calculate and use appropriate ratios in your analysis for the sections required below:
2.1 Statement of Profit or Loss
Analyse and comment on the financial performance of Roast Ltd using all relevant
information from exhibits 1 and 2. Your analysis should critically evaluate the lines of the
Statement of Profit or Loss. 20 marks
2.2 Statement of Financial Position
Analyse and comment on the financial position of Roast Ltd using all relevant information from exhibits 1 and 2. Your analysis should critically evaluate the lines of the Statement of
Financial Position. 15 marks
2.3 Statement of Cash Flows
Use the Statement of Cash Flows (exhibit 1) and identify what has happened to the cash
position of Roast Ltd during 2018. 4 marks
Calculate and explain Roast Ltd’s Operating Cash Cycle (OCC) for 2018 and 2017. 3 marks
Critically evaluate the company’s 2018 dividend policy and explain whether you think Roast
Ltd was right not to make a dividend payment in 2018. 3 marks Part 3: Investment Appraisal
Critically evaluate the investment appraisal information (exhibit 3).
Your evaluation should challenge the management forecast in the first part of your answer. Then, in the context of Roast Ltd, critically evaluate the following investment appraisal techniques considering the benefits and limitations of each technique. You need to give a clear assessment as to whether the company was right to proceed based on the results of each appraisal technique and what we now know. Use the following sub-headings to structure your answer:
3.1.a Management Forecast 5 marks 3.1.b Investment Appraisal Techniques – Payback period 3 marks – Accounting Rate Of Return 3 marks – Net Present Value 3 marks
3.2. Sources of Finance
Given that Roast Ltd is considering a further investment, this time into Italy of £400,000 from 2019, assess the benefits and drawbacks of two alternative sources of finance for this further investment, including an assessment of their appropriateness in this case. Give a
clear conclusion as to what course of action you recommend. 10 marks
Total 80 marks
The word limit is 3,500 words excluding numerical tables, bibliography and appendices. The executive summary is included in the word count.
To assist you with this task you have been supplied with the following information:
- Exhibit 1: Extracts from Roast Ltd’s Financial Statements for 2018, including the Statement of Profit or Loss, Statement of Financial Position, Statement of Cash flows and Statement of Changes in Equity.
- Exhibit 2: Notes from a meeting between the Loan Officer at Finance Bank and Roast Ltd’s Chief Financial Officer, Dan Shaw.
- Exhibit 3: Investment Appraisal – Romania expansion figures drawn up in 2016 for 2017 onwards.
CASE STUDY – ROAST LTD
Roast Ltd is an independent coffee house chain that was established in the UK in 2008. It has become a well-established part of the popular café culture that has developed alongside the emergence of the digital age, with workers taking their mobile devices to their local café to benefit from wifi, a caffeine boost and possibly something to eat, as an alternative location to their desk.
To face off competition, Roast Ltd has built its brand strength on the fact that it is independent. Paola King, the chair of the company since their inception, and formidable driving force behind their success to date, cites their USP as follows: “We offer an alternative to the big brands: we are all about employing local people, and giving something back to the high street; our coffee shops are not cookie-cutter duplications of each other, they all have a certain character depending on their location, and that’s important to us in this increasingly globalised and corporate world. This is a family business, proud of its Italian heritage and inspiration: my parents were from Rome, and we use only the best Italian technology in our coffee machines and follow Italian brewing processes to ensure that every cup of Roast coffee is on a par with what you’d get in a top Italian caffè.”
It may be smaller in size than its big brand competitors, but that hasn’t limited Roast’s ambitions, as it is currently in the middle of a two-phase expansion strategy:
- Phase one – which commenced at the start of 2017 was the opening of a chain of coffee shops in Romania. This has been slow to get going: the launch was initially anticipated for midway through 2017, but ultimately sales only started in January 2018.
- Phase two – In 2019 Roast Ltd is seeking to use its strong supplier contacts in Italy to acquire a share in a coffee machine manufacturer for which it needs to secure finance of a further £400,000.
Exhibit 1: Extracts from Roast Ltd’s Financial Statement for 2018
Roast Ltd Statement of Profit or Loss for the year ended 31/12/18
| Revenue |
2018 £’000 2,534 |
2017 £’000 2,022 |
|||
| Cost of Sales | (1,990) | (1,505) | |||
| Gross Profit | 544 | 517 | |||
| Other operating income | 60 | 0 | |||
| Operating Expenses: | (477) | (466) | |||
| Operating Profit/(Loss) | 127 | 51 | |||
| Finance costs | (26) | (6) | |||
| Profit/(Loss) before Tax | 101 | 45 | |||
| Income Tax expense | (20) | (9) | |||
| Profit/(Loss) for the period | 81 | 36 |
| Note 1 – Extract of supporting notes for the Statement of Profit or Loss 2018 2017 Operating Expenses £’000 £’000 Employee expenses 227.7 269.9 Directors remuneration 35.1 51.8 Bad Debt charges 7.9 5.3 Utility costs 22.8 26.2 Legal and Professional fees 3.6 28.7 Depreciation charges 31.7 20.9 Store maintenance 72.2 27.6 Distribution costs 29.2 8.9 Marketing & Advertising costs 46.8 26.7 477.0 466.0 |
|||||
| Roast Ltd Statement of Financial Position as at the end of 31/12/18 | |||||
| 2018 | 2017 | ||||
| ASSETS Non-current Assets |
£’000 | £’000 | |||
| Property, Plant and Equipment Current Assets |
996 | 670 | |||
| Inventories | 299 | 120 | |||
| Trade and other receivables | 148 | 93 | |||
| Cash and cash equivalents | 0 | 134 | |||
| 447 | 347 | ||||
| Total Assets | 1,443 | 1,017 | |||
| 200 | 200 |
| 660 | 579 |
| 860 | 779 |
| 275 | 100 |
| 275 | 100 |
| 235 | 138 |
| 73 | 0 |
EQUITY AND LIABILITIES
Equity
Share Capital
Retained Earnings
Total Equity
Non-current Liabilities
Long-term borrowings
Current Liabilities
Trade payables
Bank overdraft
308 138
Total Liabilities 583 238
Total Equity and Liabilities
| Note 2 – Extract of supporting notes for the Statement of Financial Position Retained earnings column only Retained Earnings 2018 2017 £’000 £’000 Opening balance 579 573 Profit for the year 81 36 Dividend paid 0 (30) Closing balance 660 579 |
Roast Ltd Statement of Cash Flows for the year ended 31/12/18
2018
| Cashflows from operating activities | £’000 £’000 |
| Operating Profit Adjustments for: |
127 |
| Depreciation | 32 159 |
| (Increase)/Decrease in inventories | (179) |
| (Increase)/Decrease in trade and other receivables | (55) |
| Increase/(Decrease) in trade payables | 97 |
| Cash generated from operations | 22 |
| Interest paid | (26) |
| Income tax paid | (20) |
| Dividend paid | 0 |
| Net cashflow from operating activities Cashflows from investing activities |
(24) |
| Purchase of Property, Plant and Equipment | (358) |
| Net cashflow from investing activities Cashflows from financing activities |
(358) |
| Proceeds from long-term borrowings | 175 |
| Net cashflow from financing activities | 175 |
Net increase/(decrease) in cash and cash equivalents (207)
Cash and cash equivalents at the start of year 134
Cash and cash equivalents at the end of year (73)
Exhibit 2: Notes from a meeting between the Loan Officer at Finance Bank and Roast Ltd’s Chief Financial Officer, Dan Shaw
Purpose of meeting: to begin to consider whether Finance Bank is willing to finance Roast Ltd’s second phase of expansion into Italy.
Dan Shaw talked through the company’s latest financial statements set out in Exhibit 1. The following points were noted:
- 2018 has been a good year for the company, with the increase in revenue indicating that phase one of the expansion strategy has been successful, despite the delay to the initial launch that was originally planned for 2017.
- The split of Roast Ltd’s revenue by country is set out below
| Country UK Romania |
Revenue | Revenue 2017 £’000 2,022 0 |
|
| 2018 £’000 2,184 350 |
|||
| Total | |||
| 2,534 | 2,022 | ||
Revenue
- Roast Ltd always prided itself on high quality ingredients, but the increasingly public scrutiny of supply chains combined with trends for organic and fair-trade coffee beans have led Roast Ltd to experience a small increase in their product costs, which they have not been able to pass on to consumers.
- The expansion into Romania required new investment in the properties and equipment of a chain of coffee houses based there. All legal costs relating to this were completed in 2017.
- Early in 2017, a supplier called Caffè Tostato was accused of stealing and copying a number of Roast Ltd’s brand designs. This resulted in a lengthy court case during 2017 and lots of media interest. In January 2018 this case was decided in favour of Roast Ltd. Caffè Tostato was ordered to pay them £25,000 in legal costs and £45,000 in damages.
- Roast Ltd has been focused on cutting costs across the business and the following was noted: o The general reduction in the global price of oil in 2017 meant that Roast Ltd was paying less for their power and heat. o Roast Ltd outsourced various business support areas, which included payroll, human resources, finance and customer support teams to an external service provider. o This outsourcing resulted in 13 of Roast Ltd’s employees (out of a business support workforce of 20) being transferred to the external service provider.
o The outsourcing exercise did not impact on the company’s production workforce, only the support functions. o This outsourcing exercise also resulted in a review of the company’s board structure and various changes occurring in 2018, which included:
▪ Roast Ltd’s previous Marketing and Human Resources director resigned his post due to ill-health. Rather than replacing him, Roast Ltd’s chair Paola King has decided to combine the role with her role as chief executive for no additional salary.
▪ In an attempt to make the company leaner and more focussed on generating shareholder wealth, it was decided not to re-elect or replace its Non-Executive Director, effectively removing this role from the board’s structure.
- Roast Ltd’s customer base is almost entirely individual consumers, but it does also have a branded coffee bar in the offices of a handful of companies. Normal payment terms for the business customers are 30 days from receipt of goods (when the sales invoice is provided). However, in 2018, one of Roast Ltd’s main business customers suffered cash flow difficulties and negotiated an increase in the payment period from 30 to 90 days.
Exhibit 3: Investment Appraisal – Romania expansion figures drawn up in 2016 for 2017 onwards
| Investment – New Product Lines Initial Investment £500m |
|||||
| Management Forecast | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
| Revenue |
£’000 300 |
£’000 560 |
£’000 740 |
£’000 900 |
£’000 1,120 |
| Variable costs | (240) | (448) | (592) | (720) | (896) |
| Contribution | 60 | 112 | 148 | 180 | 224 |
| Notes: Year 1 = 2017 Contribution represents the cash |
inflows | ||||
| Payback Period Cumulative Cash Time Cash flow Flow £’000 £’000 0 (500) (500) 1 60 (440) 2 112 (328) 3 148 (180) 4 180 0 5 224 224 Assuming that the cash flows occur evenly, payback period will be 4 years |
| Accounting Rate Of Return ARR = Average annual profit from investment x 100 Average investment Roast Ltd has a target ARR of 10% Year Cashflow Notes: £’000 Ave. Annual Profit = (724 -500)/5 years = £44.8m 1 60 Ave. asset value = 500 / 2 = 250 2 112 ARR = (44.8/250) x 100 = 18% 3 148 4 180 5 224 724 |
| Net Present Time |
Value Cash flow £’000 |
Discount Factor 5% |
Present Value £’000 |
|||
| 0 | (500) | 1.000 | (500) | |||
| 1 | 60 | 0.952 | 57 | |||
| 2 | 112 | 0.907 | 102 | |||
| 3 | 148 | 0.864 | 128 | |||
| 4 | 180 | 0.823 | 148 | |||
| 5 | 224 | 0.784 | 176 | |||
| Note: The cost of capital is 5% |
NPV | 110 | ||||
End of case study
2.2. Assessment Submission Structure
Executive summary Part 1: Industry Review Part 2: Business Performance Analysis
2.1 Statement of Profit or Loss
2.2 Statement of Financial Position
2.3 Statement of Cash Flows
Part 3: Investment Appraisal and Sources of Finance
3.1 Investment Appraisal
- Management Forecast
- Investment appraisal Techniques
- Payback Period
- Accounting Rate of Return
- Net Present Value
3.2 Sources of Finance
2.3. Assessment Marking Scheme (Student Version)
The assignment is marked out of 80. The following table shows the mark allocation and the approach required. Your coursework mark is added to the results from your MCQs to give a total out of 100.
| Assignment Part | Mark | Approach |
| Format | 1 | Business report with headings, sub-headings and paragraphs |
| Executive summary | 5 |
Key highlights / findings from drawn from each task below to answer the question: should Starbucks acquire Roast Ltd or not? |
| Part 1: Industry Review | 5 |
Using your own independent research, provide a top-line review (in bullet point format) of the current UK coffee house industry. This should include a summary of who the key players are, how well it is performing, and any challenges or opportunities that you find. |
| Task 2: Business Performance Analysis | You will need to calculate and use appropriate ratios in your analysis for the sections required below: | |
| 2.1 Statement of Profit or Loss | 20 |
Analyse and comment on the financial performance of Roast Ltd (exhibits 1 and 2). Your analysis should critically evaluate the lines of the Statement of Profit or Loss. |
| 2.2 Statement of Financial Position |
15 |
Analyse and comment on the financial position of Roast Ltd (exhibits 1 and 2). Your analysis should critically evaluate the lines of the Statement of Financial Position. |
| 2.3 Statement of Cash Flows | 10 |
Use the Statement of Cash Flows (exhibit 1) to identify what has happened to the cash position of Roast Ltd during 2018. Calculate and explain Roast Ltd’s Operating Cash Cycle (OCC) for 2018 and 2017. Critically evaluate the company’s 2018 dividend policy and explain whether you think Roast Ltd was right not to make a dividend payment in 2018. |
| Task 3: Investment Appraisal and sources of finance | ||
| 3.1 Investment Appraisal | 14 |
Your evaluation should challenge the management forecast in the first part of your answer. Then, in the context of Roast Ltd, critically evaluate the following investment appraisal techniques considering the benefits and limitations of each technique. You need to give a clear assessment as to whether the company was right to proceed based on the |
| results of each appraisal technique and what we now know. | ||
| 3.2 Sources of Finance | 10 |
Given that Roast Ltd is considering a further investment, this time into Italy of £400,000 from 2019, assess the benefits and drawbacks of two alternative sources of finance for this further investment, including an assessment of their appropriateness in this case. Give a clear conclusion as to what course of action you recommend. |
| Total | 80 |
End of brief
