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 in the UK.
Final Assessment
You have been asked by your 65 year old aunt Hattie 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 may need to rely on your own assumptions and estimates for some of the analysis where appropriate.
Hattie lives near Manchester, England, and recently took early retirement (from a university she joined 30 years ago), leaving them with a lump sum (after tax) payment of £450,000. Surprisingly, rather than being depressed by her new state of independence, she is tired of the bureaucratic life and excitedly contemplating a new career as a retailer of geodes1 and other decorative stones. She is confident that she can set up a business to import geodes from Uruguay and sell them in Europe. Her husband, who she met in the USA 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.
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1. A geode is a spherical rock with a hollow cavity lined with crystals
After a couple of hours with Hattie you have assembled the following information from her: - Colada Geodes, an established supplier of geodes and similar stones based in Artigas (and owned by one of Hattie’s university colleagues), is prepared to give her exclusive rights to sell their products in the UK for a six year period in exchange for an upfront payment for those rights;
- The geodes sell in Uruguay for an average of 350 Uruguayan Peso (or $U for short) per kg, and Colada Geodes is prepared to sell them to Hattie at a 45% discount to this price;
- Colada Geodes would ship to Hattie on receipt of payment for each order;
- Hattie has found out that freight from Artigas to Manchester, via Montevideo by truck and air freight, would cost on average $U 200 per kg and that the time from her placing an order to receiving the goods in Manchester would be four weeks (including the preparation and packing time in Uruguay);
- Hattie plans to order from Colada Geodes monthly and intends to maintain a minimum stock of one month’s worth of sales to ensure that she will be able to supply a suitable range of products to customers;
- She will buy a special jig and tools at a cost of £ 3,500 to break open and polish the geodes, and has found a small industrial room she can rent nearby at a cost of £ 300 per month (payable monthly in advance, plus an initial security deposit of three months rent, refundable at the end of her tenancy if there is no damage);
- Hattie will sell the geodes throughout the UK by internet only, and is planning to spend
£ 4,000 with a website designer to develop the site;
- She has already spent £ 3,000 on a market study that told her 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 to the full level at the end of the first year;
- The above study assumed an average selling price of £ 35 per kg (ignore any impact of sales taxes in your calculations);
- Packaging and shipping in the UK would average £ 5.50 per kg, and Hattie is not intending to charge that to the customer;
- All sales would be by credit card, with the credit card company taking 1.2% per sale and remitting the monthly total to Hattie two weeks after the end of each calendar month; - She believes that two part-time students could run the geode operation at a total cost to her
(including employer’s social charges) of £ 1,500 per month;
- Hattie believes that, if necessary, she could borrow up to an additional £ 40,000 at 7% p.a.; - The effective overall marginal tax rate on income from a company set up to undertake this activity would be 28%, payable one year in arrears; Hattie has also told you that she can invest any available cash at an after tax 3% per annum.
Hattie also has a friend, Ian, who runs a small chain of gift shops in the Lake District. Ian is interested in the venture and has agreed that if Hattie would mount six different geodes in glassfronted cabinets for wall mounting, he would buy 6 such cabinets (each containing 1.5 kg of geodes on average) from her per month (which would be in addition to the internet sales outlined above, and would start immediately), at a price of £ 45 (paid immediately) per completed cabinet. To do this Hattie would need to buy-in cabinets and mounting accessories at a cost of £ 7 per cabinet and hire a part-time assistant specifically to assemble the cabinets, at an additional cost (including employer’s social charges) of £ 200 per month. Ian plans to sell the cabinets at £ 75 each.
Hattie remembers lectures on discounted cash flow analysis at business school (although she admits that she did not fully understand them, unlike her husband who was a distinction student). She has asked you to prepare an 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 Hattie could offer Colada Geodes as an upfront fee for the exclusive rights for the six year period (which does not include any geode 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 Hattie 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?
Hattie 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 word limit; there is no minimum word 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 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