UCBS7037 Financial Management Assessment
University of Cumbria and Robert Kennedy College
General Instructions – Please read carefully
University of Cumbria, Financial Management Interim Assignment and 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 your draft of 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 and final assessment in the Forum.
4. Note that this is a fictional case focused on assessing your understanding of management accounting; you are not expected to comment in any way on aspects such as the market feasibility or actual rates of tax.
You have been asked by your 60-year-old uncle Isaac to help him assess a new venture. It is Friday night, and he needs the work finished by Sunday, in preparation for an early Monday morning meeting, so you know that he will not be able to give you any more information than he already has (and you will be unable to contact him over the weekend), and therefore you may need to rely on your own assumptions and estimates for some of the analysis where appropriate.
Isaac lives near Toronto in Canada and recently took early retirement (from a soft drinks company he joined 25 years ago), leaving the company with a lump sum (after tax) payment of CAD 800,000. Surprisingly, rather than being depressed by his new state of independence, he is tired of the bureaucratic life and excitedly contemplating a new career as a retailer of a range of German fine handmade chocolate. He is confident that he can set up a business to import the chocolate from Lindau and sell it in Canada. His wife, who he met at business school, is pleased with his passion for this possible new venture but concerned that it might turn into a financial disaster. She has suggested that he develop a financial plan to evaluate the venture and its viability.
After a couple of hours with Isaac you have assembled the following information from him:
– AlpenChoc, an established artisan manufacturer of fine chocolates with innovative flavours (owned by one of Isaac’s university colleagues), is prepared to give him exclusive rights to sell their products in Canada for a seven-year period in exchange for an upfront payment for those rights;
– The chocolate sells in Germany for an average of 120 Euro (€) per kg, and AlpenChoc is prepared to sell them to Isaac at a 40% discount to this price;
– AlpenChoc would ship each order to Isaac as soon as they receive payment;
– Isaac has found out that shipping from AlpenChoc to Toronto by air freight, would cost on average € 14 per kg and that the time from him placing an order to receiving the goods in
Toronto would be two weeks (including the preparation and packing time in Lindau);
– Isaac plans to order from AlpenChoc monthly and intends to maintain a minimum stock of one month’s worth of sales to ensure that he will be able to supply a suitable range of chocolates to customers;
– He will buy a special refrigerator at a cost of CAD 15,500 to keep the chocolates in good condition, and has found a small industrial room he can rent nearby at a cost of CAD 3,500 per month (payable monthly in advance, plus an initial security deposit of three months’ rent, refundable at the end of his tenancy if there is no damage);
– Isaac will sell the chocolates throughout Canada by internet only, and is planning to spend
CAD 8,500 with a website designer to develop the e-commerce site;
– He has already spent CAD 5,000 on a market study that told him that once established, demand would be about 750 kg a month, although in the first-year sales would start at only 50 kg in the first month before building up slowly through the year to the full level at the end of the year; – The above study assumed an average selling price in Canada of CAD 160 per kg (ignore any impact of sales taxes in your calculations);
– Packaging and shipping in Canada would average CAD 6 per kg, and Isaac is not intending to charge that to the customer;
– All sales would be by credit card, with the credit card company taking a 1.2% handling fee per sale and remitting the monthly total to Isaac two weeks after the end of each calendar month;
– He believes that two part-time students could run the entire operation at a total cost to him
(including employer’s social charges) of CAD 2,500 per month;
– Isaac understands that, if necessary, he could borrow up to an additional CAD 80,000 at 7% p.a.;
– The effective overall marginal tax rate on profit from a company set up to undertake this activity would be 25%, payable one year in arrears; Isaac has also told you that he can invest any available cash at an after tax 3% per annum.
Isaac also has a friend, Jade, who owns a small chain of travel agents in the Toronto area. Jade is interested in the venture and she has agreed that if Isaac packages the chocolates in boxes decorated with views of Southern Germany, she would give him a two-year contract to buy one hundred boxes (each containing 250gm of chocolates) from him per month, at a price of CAD 45 each. This would be in addition to the internet sales outlined above and would start immediately. To do this Isaac would need to buy in boxes and decorative paper at a cost of CAD 8 per box, and he has found a used table top wrapping machine that could be bought for CAD 2,200. He would also hire an assistant specifically to pack and deliver the boxes at an additional cost (including employer’s social charges) of CAD 500 per month.
Isaac remembers lectures on discounted cash flow analysis at business school and wonders if that is the best way to assess this opportunity. He has asked you to prepare an analysis while he is away to help him with the decision, making clear any assumptions that you make; the analysis should not exceed a total of 25 pages (everything from the cover page to the final page), 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 Isaac could offer AlpenChoc as an upfront fee for the exclusive rights for the seven year period (which does not include any chocolates, just the rights) which would leave him no better or worse off than if he had not undertaken the venture, and the amount you suggest he should actually offer them;
– Conclusions and recommendations of whether or not he should pursue the offer;
– A critical reflection of the analysis that Isaac 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?
Isaac has explained that he is going to be out of town for a wedding so will be unable to provide any assistance at all, but as he 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 page 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 and in MS-Word 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%
The Interim Assignment is to develop the Profit and Loss Statement (only) 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 the 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.
(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
UCBS7037 Financial Management Assessment University of Cumbria and Robert Kennedy College General Instructions – Please read carefully University of Cumbria, Financial Management Interim Assignment
UCBS7037 Financial Management Assessment