Module Code: MN7023NIModule Title: Financial decision Making – Islington College

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COURSEWORK QUESTION PAPER: 1^st sit Autumn 2023 Semester 

Module Code: MN7023NI Module Title: Financial decision Making Module Leader: Mr. Prakash Ghimire (Islington College)

Coursework Type: Individual Coursework Based on a case-study, students will prepare an investment appraisal  of a business project or major sale. They will submit a presentation  and supporting spreadsheet analysis Coursework Weight: This coursework accounts for 70% of your total module grades. Submission Date: 12th February 2024 When Coursework is given  15th January 2024 out: Submission Instructions: • You are required to submit your assessment via MST  Platform as a PowerPoint file (.pptx). Use the PowerPoint  notes to support and explain the side content.  • You should also record the presentation.  • This should be uploaded to YouTube with a setting of public,  unlisted and provide a link on the cover slide to the video  recording.  Warning: London Metropolitan University and Islington College take Plagiarism  seriously. Offenders will be dealt with sternly.

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Individual coursework: 

This summative assessment is an individual coursework. It is a report on a case study. (70% of Module Grades) 

PLEASE READ THE FOLLOWING CAREFULLY 

Section A: Learning outcomes of the assessment 

LO 2. Demonstrate an understanding and use of the appropriate analytical techniques to be applied to  business case development and investment appraisal; the raising of finance and distribution of funds  to investors.; 

LO 3. Demonstrate an understanding of basic statistics and modelling techniques and be able to interpret and communicate findings. 

Section B: Introduction 

The assessment assesses learning outcomes 2 and 3 of the 3 module learning outcomes of this module, which  are that on successful completion of the module students will be able to: 

• Demonstrate an understanding and use of the appropriate analytical techniques to be applied to  business case development and Investment appraisal; the raising of finance and the distribution of  funds to investors; 

• Communicate financial information, analysis, issues and recommendations clearly and concisely. Assessment Details 

Question 

Tech Genius Inc. (a fictional company) is a technology company incorporated in the United Kingdom. It  specializes in designing and manufacturing cutting-edge smart home devices. The company is currently  considering the launch of a new smart refrigerator and needs to make an informed decision about the project’s  viability and pricing strategy. 

As the Business Manager responsible for the product launch, you have been tasked by the CEO to prepare a  comprehensive report on the investment in the new smart refrigerator project. The Finance Manager is on  leave for the next three weeks, so you are solely responsible for the presentation. 

You have received critical information from various departments within the organization: 

Research and Development (R&D) Team: 

“We’ve invested £600,000 in the development of the smart refrigerator. To bring it to market readiness, we  estimate an additional research cost of approximately £75,000.” 

Production Department: 

“In order to manufacture the smart refrigerators efficiently, we need to acquire new equipment, which comes  at a cost of £2,000,000. The existing workforce can handle the production, but we need to hire a ‘Production  Supervisor’ to oversee the manufacturing process. The HR team is currently determining the supervisor’s  salary, which will be communicated soon. The equipment is expected to have a useful life of 6 years.” 

Marketing Director: 

“I’ve conducted market research and identified potential pricing strategies. Based on our analysis, we  recommend a wholesale sales price of £1,200 per smart refrigerator over a projected 5-year. The cost of raw  materials accounts for 30% of the sales price. We anticipate the following sales projections for the first 5 years: • Year 1: 8,000 smart refrigerators 

• Year 2: 10,000 smart refrigerators

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• Year 3: 12,500 smart refrigerators 

• Year 4: 12,500 smart refrigerators 

• Year 5: 10,000 smart refrigerators 

We assume that technological advancements will render the product less competitive after 5 years, making  further investment necessary. The equipment will have no salvage value at that point. 

We have devised a marketing and advertising campaign that will cost £750,000 in the first year and remain  consistent for years 2 and 3, before decreasing to £300,000 in years 4 and 5. The HR team has also confirmed  that the Production Supervisor’s salary and benefits will begin at £40,000 in year 1, with an anticipated annual  inflation rate of 2.5%, including National Insurance costs.” 

You have researched how to calculate the Weighted Average Cost of Capital (WACC) and obtained the  following information: 

• The current market value of the company’s shares is £4.00 per share, with 4 million ordinary shares  in circulation. Dividends are expected to be 40p per share indefinitely. 

• Tech Genius Inc. has £15 million in irredeemable loan capital, carrying an interest rate of 8%, currently  quoted at £92 per £100. The corporate tax rate is 22%. 

The company has historically used an estimated Weighted Average Cost of Capital of 18%, and the  management team is interested in understanding the implications of your calculated WACC on the project’s  evaluation, as well as the original 18% estimate. 

Your Task 

In the absence of the Finance Manager, the CEO has requested a presentation to the Board regarding the  feasibility of the smart refrigerator project. The Board members are not finance experts but are keen to learn  about investment appraisal techniques. They expect a comprehensive explanation of your decision-making  process, including: 

1. An Executive Summary (please also include a short recording on the slide of no more than 5 minutes  presenting the executive summary and conclusion of your project). 

2. A projected cash flow for the smart refrigerator project over its 5-year duration. 

3. An explanation of the cost of capital, covering:  

• Definition and purpose of the Weighted Average Cost of Capital (WACC).  

• How and why WACC is used in investment analysis.  

• Detailed calculations of the WACC for Tech Genius Inc., showing the individual components. 4. A financial assessment of the project using the Net Present Value (NPV) and Payback Period  methods, including:  

• Calculations of NPV and Payback period for the project using WACC (with detailed Excel  calculations in the Appendix).  

• Calculations of NPV and Payback period for the project using the historical cost of capital of  18% (with detailed Excel calculations in the Appendix).  

• A clear decision on whether to proceed with the project and the rationale behind this decision. 5. An explanation of the benefits and limitations of the four main investment appraisal techniques. 6. An overview of various types of funding available to companies (long-term, short-term, equity, debt,  

etc.), their advantages, disadvantages, and insights into a bank’s loan approval process and risk  mitigation strategies. 

7. A Conclusion that summarizes your findings and provides a recommendation regarding the project’s  viability at both the calculated WACC and the 18% historical cost of capital. 

Remember to include a voiceover recording (no more than 5 minutes) on the Executive Summary page,  highlighting your key findings and conclusions regarding the project.

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Structure of the report 

The report should be prepared in PowerPoint and should contain the following slides: • Executive summary (A summary of your proposal in a page) 

• Introduction 

• Calculation and critical evaluation of WACC (detailed calculation may be shown in an Appendix) • Projected cash flow 

• Calculation of NPV and PP (detailed calculation may be shown in an Appendix) using the WACC • Calculation of NPV and PP (detailed calculation may be shown in an Appendix) using a cost of capital  of 18% 

• Explanation of and critical evaluation of the 4 main capital investment appraisal techniques • Critical explanation of different forms of funding for companies 

• Conclusion 

• Appendices – detailed calculations and references 

The PowerPoint file should be uploaded to MST Platform.  

END OF THE DOCUMENT

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