UCBS7037 Financial Management Assessment

 Financial Management Assessment

University of Cumbria and Robert Kennedy College

General Instructions – Please read carefully

University of Cumbria, Financial Management, June 2019: Final Assessment

 

 

1. You are required to complete the assessment outlined below and submit your completed

final document through the RKC Online Campus by the end of Unit 6. Your grade will be

based 100% on this final document, to which you will also receive written feedback.

 

2. In addition you must upload part of the analysis for the above document by the end of

Unit 3 (see Interim Assignment at the end of this document for more details). This draft will not

be graded, but it is an important way of monitoring your progress, and you will receive feedback

with respect to the topic covered in the interim assignment.

 

3. Please ask any questions about the interim assignment or final assessment in the Forum.

 

4. Note that this is a fictional case focused on understanding management accounting; you are

not expected to comment in any way on aspects such as the market feasibility or the actual rates

of tax in France.

 

 

 

Financial Management, June 2019 – Assessment

 

 

You have been asked by your 61 years old aunt Gabrielle to help her assess a new venture. It is

Friday night, and she needs the work finished by Sunday, in preparation for an early Monday

morning meeting, so you know that she will not be able to give you any more information than

she already has (and you will be unable to contact her over the weekend), and therefore you

should rely on your own assumptions and estimates for some of the analysis where appropriate.

 

Gabrielle lives in Paris, France and recently took early retirement (from a supermarket group she

joined 30 years ago), leaving the company with a lump sum (after tax) payment of €630,000.

Surprisingly, rather than being depressed by her new state of independence, she is excitedly

contemplating a new career as an e-retailer of a range of coated nuts (almonds, walnuts,

macadamia, pecans, etc). She is confident that she can set up a business to import the nuts from

the USA and sell them in France. Her husband, who she met at business school, is pleased with

her passion for this possible new venture, but concerned that it might turn into a financial

disaster. He has suggested that she develop a financial plan to evaluate the venture and its

viability.

 

 

 

After a couple of hours with Gabrielle you have assembled the following information from her:

– WeLoveNuts Inc (WLN), an established US producer of coated nuts with unusual and

innovative flavours (owned by one of Gabrielle’s university colleagues), is prepared to give her

exclusive rights to sell their products in France for a four-year period in exchange for an upfront

payment for those rights;

– The nuts retail in the USA for an average of $28 per pound (lb), and WLN is prepared to set

the selling price to Gabrielle at a 37% discount to this price;

– WLN would ship to Gabrielle on receipt of payment for each order;

– Gabrielle has discovered that air freight from the USA via courier would cost on average $3.50

per lb and that the time from her placing an order, to receiving the goods in Paris, would be

three weeks (including the preparation and packing time in the USA);

– Gabrielle plans to order from the USA monthly (to maximise the shelf life in France) and

intends to maintain a minimum stock of four weeks’ worth of sales to ensure that she will be

able to supply a suitable range of products to customers;

– She will buy a special refrigerator at a cost of €6,500 to keep the nuts in good condition, and

has found a small industrial room she can rent nearby at a cost of €825 per month (payable

monthly in advance, plus an initial three month security deposit, refundable at the end of her

tenancy if there is no damage);

– Gabrielle will sell the nuts throughout France by internet, and is planning to spend €11,500

with a website designer to develop the website;

– She has already spent €7,500 on a market study that told her that once established, demand

would be about 220 kilogram (kg) a month, although in the first year sales would start at only 30

kg in the first month before building up slowly to the full level at the end of the first year when

they would remain constant;

– The above study assumed an average selling price in France of €85 per kg of nuts (ignore any

impact of sales taxes in your calculations);

– Packaging and shipping in France would average €3.50 per kg, and Gabrielle is not planning to

charge that to the customer;

– All internet sales would be by credit card, with the credit card company taking 1.2% handling

fee per sale and remitting the net monthly total to Gabrielle two weeks after the end of each

calendar month;

– Gabrielle believes that two students could run the operation part-time, at a total cost to her

(including employer’s social charges) of €22,000 per year;

– She believes that if necessary she could borrow up to an additional €50,000 at 7% p.a.;

– The effective overall marginal tax rate on income from a company set up to undertake this

activity would be 35%, payable one year in arrears; Gabrielle has also told you that she can

invest any available cash at an after tax 3% per annum.

 

Gabrielle also has a friend, Quentin, who runs a small chain of travel agents in the Paris area.

Quentin is interested in the venture and has agreed that if Gabrielle can package the nuts in

boxes decorated with pictures of American landmarks, he would give her a twelve month

contract to buy fifty boxes, each containing 350 grammes (gm) of nuts, from her per month. He

would pay Gabrielle €20 each box, to be paid one month after delivery to him, and these sales

would be in addition to the internet sales outlined above (and would start immediately). To do

this Gabrielle would need to buy in boxes and decorative paper at a cost of €0.95 per box,

purchase a printer at a cost of €650 to decorate the boxes, and hire an assistant specifically to

pack and deliver the boxes at an additional cost of €200 per month.

 

 

 

 

 

Gabrielle remembers lectures on discounted cash flow analysis at business school and she has

asked you to prepare a financial analysis, while she is away, to help her with the decision,

making clear any assumptions that you make; the analysis should not exceed a total of 25 pages

(everything included), and should include:

 

– A summary of all assumptions and estimates that you have made for your analysis, including

justifications where appropriate;

– A break even analysis;

– A Profit and Loss Statement for the first year of operations and Balance Sheet at the end of the

first year;

– Monthly cash flow for the first year of operation;

– Annual cash flow thereafter;

– A clear explanation, in plain English, of how much cash the venture will need to get started;

– Any sensitivity analysis that you think would be helpful;

– The most that Gabrielle could offer WLN as an upfront fee for the exclusive rights for the four

year period (which does not include any nut purchases) which would leave her no better or

worse off than if she had not undertaken the venture, and the amount you suggest she should

actually offer them;

– Conclusions and recommendations;

– A critical reflection of the analysis that Gabrielle has asked you to prepare; how you have

evaluated the attractiveness of the venture and what, if anything, would you do differently in a

financial analysis of this opportunity, and why?

 

Gabrielle has explained that she is going to be out of town for a wedding so will be unable to

provide any assistance at all, but as she pointed out before leaving “you will find this easy with

computers and the internet to help”.

 

Your report should demonstrate skills of critical reflection, effective communication and

balanced judgement; note that this is not a market report. Scripts that are excessively long (i.e.

exceeding the page limit) will not be read beyond the point of the limit; there is no minimum

page limit. Do not put your name on the paper.

 

The overall structure should be as follows:

 

1. Cover Page (1 page)

2. Table of Contents/List of Exhibits (1 page)

3. Executive Summary

4. Main Report

5. Critical Reflection

5. List of References.

 

The data in your answer should be clearly laid out in tabular format so that your approach and

answer are both plainly evident.

 

 

 

 

 

 

Submissions should be machine readable in MS-Word format only; submit only one file,

and include any Excel analysis as images, not embedded files.

 

 

Grading will be based on the following breakdown:

– Assumptions, estimates and sensitivity analysis: 25%

– Cash flow and financial viability analysis: 25%

– Other financial details (P&L Statement, Balance Sheet, break even, etc): 35%

– Critical reflection: 10%

– Referencing and presentation: 5%

 

 

 

 

Interim Assignment

 

The Interim Assignment is to develop the Profit and Loss Statement for the first year of

operations, which you will see is also part of the required content of your final

assessment paper.

 

You should clearly explain any assumptions in this P&L Statement and you may, if you

wish, make any changes to that P&L Statement for your subsequent Unit 6 final

assessment submission. The Interim Assignment is not graded but you will receive

feedback on it.

 

 

 

 

 

 

 

 

 

 

 

Criteria and Weighting 70% and above (Distinction) 60% – 69% (Merit) 50% – 59% (Pass) 40% – 49% (Fail) 0% – 39% (Significant Fail)

Assumptions, estimates

and sensitivity analysis

(25%)

Excellent – wide range of key

and peripheral assumptions,

demonstrating critical

evaluation and

understanding of the issues

Substantial selection of key

and peripheral assumptions,

demonstrating analysis and

critical evaluation of a wide

range of relevant issues for

the professional context.

Good selection of key and

peripheral assumptions with

critical evaluation of

significant issues for the

professional.

Limited selection of

assumptions; some

recognition and critical

analysis of issues of

significance for the

professional context.

Limited evidence

demonstrating poor

recognition of significance for

the professional context.

Cash flow

and DCF analysis

(25%)

Excellent understanding of

the theory and its application

and subtleties

Good exploration of

knowledge and theory

relevant to the assignment.

Analysis and evaluation of

concepts are critical and fairly

insightful.

Adequate exploration of

knowledge and theory

relevant to the assignment.

Analysis and evaluation of

concepts lacks criticality and

insight.

Poor exploration of

knowledge and theory

relevant to the assignment.

Analysis and evaluation of

concepts are inadequate.

Very weak or missing

exploration of knowledge and

theory relevant to the

assignment. Analysis and

evaluation of concepts are

non-existent.

Other financial details

(35%)

Excellent understanding of

the theory and its application

and subtleties

Good exploration of

knowledge and theory

relevant to the assignment.

Analysis and evaluation of

concepts are critical and fairly

insightful.

Adequate exploration of

knowledge and theory

relevant to the assignment.

Analysis and evaluation of

concepts lacks criticality and

insight.

Poor exploration of

knowledge and theory

relevant to the assignment.

Analysis and evaluation of

concepts are inadequate.

Very weak or missing

exploration of knowledge and

theory relevant to the

assignment. Analysis and

evaluation of concepts are

non-existent.

Critical reflection

(10%)

Excellent understanding of

the strengths and limitations

of the required analysis, with

clear ideas on areas of

improvement

Good understanding of the

strengths and limitations of

the required analysis, with

some ideas on areas of

improvement

Adequate understanding of the strengths and limitations

of the required analysis, with

few ideas on areas of

improvement

Unclear understanding of the

strengths and limitations of

the required analysis, with

few ideas on areas of

improvement

Weak or confused

understanding of the

strengths and limitations of

the required analysis

Referencing and

presentation

(5%)

Excellent piece of writing,

well-structured, coherent

progression of argument,

well-articulated and

accurately referenced, with

excellent summary and clear

conclusions and

recommendations

Well written, well-structured,

coherent progression of

argument, reasonably

articulated and accurately

referenced.

Good summary, conclusions

and recommendations

Fairly well written and

structured, some coherence,

some inaccuracies in

referencing and minor issues

with expression.

Appropriate

Poorly written and

structured, incoherent and

inaccurately referenced.

Lacks summary, conclusions

and recommendations

Very weak piece of writing.

Incoherent and poorly

articulated. Inaccurately

referenced.

Lacks summary, conclusions

and recommendations