OCD066 UNIVERSITY OF BOLTON OFF CAMPUS DIVISION IDM BOTSWANNA MSC SUPPLY CHAIN MANAGEMENT SEMESTER 2 EXAMINATION 2014/15 FINANCE FOR MANAGERS MODULE NO: EBU4013 Date: 2 nd July 2015 Time: 3 hours INSTRUCTIONS TO CANDIDATES: There are 6 questions on this paper. Answer 4 questions 2 from Section A and 2 from Section B All questions carry equal marks. Additional material provided: discount factor table
Page 2 of 7 SECTION A Question 1 ABC co plans to buy new machinery in order to meet expected demand for a new product, product X. This machine will cost 200,000 and last for four years, at the end of which time it will be sold for 50,000. ABC expect demand for the product to be as follows: Year Demand (units) 1 35,000 2 40,000 3 50,000 4 20,000 The selling price of the product is expected to be 15.00 per unit and the variable cost of production is expected to be 10.00 per unit. The annual cash fixed costs (including depreciation) are 250,000. Depreciation is provided on a straight line basis, and ABC s cost of capital is 11%. Required a) Calculate the payback period (2 marks) b) Calculate the net present value (6 marks) c) Calculate the internal rate of return (6 marks) d) Based upon your calculations determine whether the company should go ahead with the investment, giving reasons for your decision. Suggest which investment appraisal method you would place most reliance on e) State ways in which the company might improve the analysis of the project to give greater insight into the project (6 marks) TOTAL 25 MARKS
Page 3 of 7 Question 2 Your company is considering buying from DEF Ltd which is a manufacturing company. The accounts of that company are shown below. The value of the contract is 1m and your company has an annual turnover of 10m. DEF Ltd 2014 2013 Profit & Loss for the year ended 31 December Turnover 9,500 5,500 Cost of Sales (8,360) (4,250) Gross Profit 1,140 1,250 Other expenses (600) (283) Operating profit 540 967 Interest payable (19) (11) Profit before tax 521 956 Taxation (156) (287) Profit after tax 365 669 Dividends (91) (63) Retained profit 274 606 Question 2 continues overleaf
Page 4 of 7 Question 2 continued DEF Ltd 2014 2013 Balance sheet as at 31 December Fixed Assets Tangible Assets 600 430 Investments 15 15 615 445 Current Assets Stock 800 650 Debtors 1,532 1,000 Cash 0 45 2,332 1,695 Bank Overdraft (33) 0 Creditors due less than 1 year (1,400) (1,000) Net current assets 899 695 Total assets less current liabilities 1,514 1,140 Long term loans (250) (150) Net assets 1,264 990 Ordinary share capital 150 150 Retained profits 1,114 840 Shareholders funds 1,264 990 Question 2 continues overleaf
Page 5 of 7 Question 2 continued Required a) Prepare a table of ratios, calculated for both years, clearly showing the figures used in the calculations. Justify the use of each of the ratios you have chosen and use them to comment on the performance of the business and recommend action for the management of your company (20 marks) b) Suggest what further information you might request from management of DEF to understand the financial performance of their business TOTAL 25 MARKS
Page 6 of 7 Question 3 You are a manager of a manufacturing company that produces three different products X, Y and Z. Information about the financial performance for the year is as follows :- Product X Y Z Sales & Production (Units) 1,000 2,000 1,500 Selling Price /unit 300 200 195 Labour Hours per unit Constructors 20 10 12 Installers 5 5 5 Cost - / hr Constructors 10 10 10 Installers 5 5 5 Material cost - per Unit 50 60 40 Fixed Cost 50,000 Total fixed overheads were 50,000 Required: a) Calculate the contribution per unit and the profit per unit for each product. Allocate the fixed costs on the basis of total labour hours (8 marks) b) Calculate the production mix that would have maximised profits if the constructors labour hours available had been limited to 30,000 (12 marks) c) Suggest reason why some overhead costs might not be relevant for decision making purposes END OF SECTION A
Page 7 of 7 SECTION B Question 4 Critically evaluate the use of equity and debt as sources of external finance available to a listed company. (25 marks) Question 5 You are a manager in a pivate sector organisation and you believe that the traditional method of budgeting is limiting the financial performance of the business. You are aware that other budgeting strategies exist and think that these should be considered by your organisation Required a) Outline the traditional process of budgeting and critically examine why this might limit the financial performance of some organisations (10 marks) b) Give an alternative to traditional budgeting and explain how this would overcome the deficiencies identified in a) (10 marks) c) Set out a high level implementation plan for the alternative discussed in b) above Total (25 marks) Question 6 a) Differentiate between Capital and Revenue expenditure. Illustrate your answer with examples of both types of expenditure. (15 marks) b) Discuss two ways in which the initial cost of a fixed asset may be apportioned against the income of an organisation (10 marks) Total (25 marks) END OF QUESTIONS