Strategic Financial Management

Strategic Financial Management

AF4S31 Assessment 2 Brief
This assignment will be marked out of 100%
This assignment contributes to 50% of the total module marks.
The assessments are bonded which means you need 40%+ over both assessments combined to pass the module.
Learning Outcomes to be assessed
As specified in the validated module descriptor available at: https://icis.southwales.ac.uk/studentmodules/10122/studentmodulespecifications
Learning outcome 1
The ability of students to critically assess, apply and evaluate the issues and techniques of strategic financial management.
Grading Criteria
Please see School’s marking criteria for undergraduate/post graduate assessments on the module VLE. Any additional grading/marking guidance will be posted with assessment task below.
Assignment
EML Co. is considering two separate projects known as ‘Endeavour’ and ‘Fox’ which are quite different but each of which has the potential to increase EML Co.’s market share. To date $80,000 has been spent on market research into the increase in demand that can be expected for each project. The next stage is to conduct a financial appraisal to determine which project should be taken forward as EML Co. can only afford to fund one project at this time.
Project Endeavour:
This project will require the acquisition of plant and machinery costing $1,500,000 which is payable immediately. This machinery will have a scrap value of $250,000 at the end of the 5 years. There is also $90,000 working capital to be used immediately. This amount has been taken from the company’s retained profits and will be repaid at the end of the project. Cash inflows before taxation are expected to be $390,000 in year 1 rising at a rate of 5% per annum for years 2 to 5 inclusive. Variable costs are currently $18,000 per annum and are expected to rise at 4.5% per annum. Capital allowances are available on the plant and machinery as follows:
$
Year 1
Year 2
Year 3
Year 4
Year 5
400,000
260,000
230,000
200,000
160,000
This project will expand the current product range and will appeal to existing and potential customers.
[Type text]
Project Fox:
This project will require an immediate outlay of $1,500,000. This expenditure will
not attract capital allowances. Net cash inflows are expected to be $750,000 in
year 1, $620,000 in years 2 and 3 and $250,000 in years 4 and 5. Material costs
are expected to be $9,600 in the first year, rising at an annual inflation rate of 5%
per annum. Other expenses at current prices are $12,000 and these are
expected to fall by 5% per annum over the life of the project.
This project will take the company in a new direction appealing to a different type
of customer.
Additional financial information:
 Corporation tax is paid at a rate of 20% and tax is payable one year in
arrears.
 Cost of capital is 10% and, unless otherwise stated, cash flows occur at the
end of the year to which they relate.
 A straight line method of depreciation at a rate of 20% is applied to all noncurrent
assets.
The initial investment of $1.5m, for whichever project is chosen, is significant in
terms of value for EML Co. The board of directors are considering ways to finance
the investment including either, increasing equity by issuing new ordinary shares,
or taking on new debt in the form of a bank loan.
Required:
Prepare a report to the Directors of EML Co. which includes the following.
1. A calculation of the Net Present Value (NPV), Internal Rate of Return (IRR)
and Payback Period for projects Endeavour and Fox. Detailed calculations
should be included as an appendix to the report. All cash flows should be
rounded to the nearest $. 30%
2. Analysis and evaluation of the investment project options as follows:
i. A recommendation regarding which project (if any) to undertake;
ii. Justifications for your recommendation including an evaluation of the
investment appraisal techniques used in task 1 above.
iii. A summary of other factors that should be considered and information
that may be needed prior to making a final decision. 30%
3. A discussion of the two sources of finance being considered by the board of
EML Co. Your report should include:
i. A description of Equity and Debt.
ii. An explanation of the costs involved in each type of finance
[Type text]
iii. The comparative advantages and disadvantages of each of these as a
source of finance from the perspectives of the board of EML Co., and
potential investors. 30%
Marks are available for presentation of the report, which must not exceed 3,000
words. 10%
Total 100%
Marking guidance
Grading Criteria
Section Weighting Criteria
1) Calculation of NPV, IRR
and Payback.
2) Analysis evaluation and
recommendation. Additional
factors and information.
3) Discussion of two sources
of finance.
30%
30%
30%
Demonstrate:
 Relevant practical, academic and
subject specific skills
 Knowledge understanding and
appreciation of issues involved.
 Ability to research and provide
practical and relevant points
 Clear communication, explanation
evaluation and discussion of aspects
being covered.
Report
Structure and presentation
10%
 Clarity of layout, grammar, presentation
and inclusion of all relevant matters
 Tone and use of professional language
i.e. suitable for addressee of report
 Accuracy of referencing, and
appropriate use of appendices
Assessment guidance
Your report should be word processed, clearly laid out and concise and should be
supported by appropriate workings for the numerical elements. The word limit for the
report is 3,000 words.
The text of this assignment must be in your own words (not even a sentence or phrase
should be taken from another source unless this source is referenced and the phrase
placed in quotes). It is dishonest not to acknowledge the work of other people and you
open yourself up to the accusation of plagiarism. Referencing should in accordance with
the Harvard System. A guide published by the Library lists the most common types of
references with examples. The guide can be found on the module VLE
Hand-in requirements and dates:
Please see the VLE
PLEASE NOTE THAT IF YOU ARE EVEN ONE MINUTE LATE UPLOADING YOUR
FILE THIS WILL COUNT AS A LATE SUBMISSION AND THE APPROPRIATE
PENALTY WILL APPLY.

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