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London School of Business & Management

BTEC Levels 4 & 5 HND Business Unit No & Unit Title

Unit No. 2; Managing Financial Resources and Decisions

Course Title BTEC Level 4- HND (Business)

Lecturers Name Asif Sadiq

Assignment Title Managing Financial Resources and Decisions

Assignment No Assignment No 1

Date Set 19th January 2015

Due Date 17th April 2015

Semester / Academic Year January 2015 Semester

Unit Outcomes Covered: On successful completion of this unit a learner will: 1 Understand the sources of finance available to a business. 2 Understand the implications of finance as a resource within a business. 3 Be able to make financial decisions based on financial information. 4 Be able to evaluate the financial performance of a business.

GRADING OPPORTUNITIES AVAILABLE Outcomes/ Grade Descriptors

AC1.1 AC1.2 AC1.3 AC2.1 AC2.2 AC2.3 AC2.4 AC3.1 AC3.2 AC3.3

Outcomes/ Grade Descriptors

AC4.1 AC4.2 AC4.3 M1 M2 M3 D1 D2 D3

Assessor: Signature: ______________ Date: ___/___/___

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Tutor Notes Key Points:

Your work should be submitted by the deadline. The assignment must be your own work and original in all answers to the tasks. All sources used should be correctly referenced in Harvard format. You will be expected to check spelling mistakes and grammar before submitting your

work. The London School of Business and Management Cover sheet should be used in

every submitted work. An appropriate report structure should be used, which may include headings such as:

Table of Contents, Introduction, Discussion/Evaluation, Conclusions, References and Appendices (if necessary).

There should be clarity of expression in your work. Your work should demonstrate, for example, relevant factual content and

understanding of the subject, critical analysis, evaluation, justifications, key arguments, correct use of appropriate models/framework etc.

Submission Regulations

1. Assignment Front Cover Sheet must accompany every submitted work [Cover sheet is

available from our Virtual Learning Environment - Moodle].

2. Assignments must be submitted on or before the due date, via Turnitin. Please refer to the LSBM Moodle for detailed assignment submission instructions.

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Assignment Brief Purpose of this assignment: MFRD module is designed to give learners a broad understanding of sources and availability of finance for a business. Learners will learn how to evaluate different sources of finance. They will learn about financial information and how to use them in planning and budgeting. Decisions relating to pricing and investment appraisal techniques are used in this module. The module provides you with essential information for the purpose of finance and reporting in different organisations. You are advised to use online information sources and academic literature to answer all parts of your assignment. You should also use academic material including textbooks and you must give credit to all sources you use and provide appropriate referencing in your assignment.

Task 1 (LO1: Understand the sources of finance available to a business) Scenario: You are planning to establish a new business or expanding the existing one. You need to forecast the level of investment required and make a plan to acquire the investment through different sources of finance (external and internal). The amount of investment required must be obtained from more than four sources of finance. Requirement: (AC1.1) Identify different sources of finance to run your business. This can include raising funds through a combination of internal and external sources of finance. (AC1.2) Assess the implication of different sources of finance and explain the legal and financial implications of your choice. (AC1.3) Evaluate appropriate sources of finance for your business project and discuss the advantages and disadvantages of your financial choice. (Task 1 covers assessment criteria AC1.1, AC1.2 & AC1.3 under LO1)

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Task 2 (LO2: Understand the implications of finance as a resource within a business) (AC2.1) Identify and analyse the cost of finance for your chosen sources. (AC2.2) Explain the importance of financial planning and discuss why financial planning is important for the success of an organisation. (AC2.3) Evaluate the information needs of different decision makers within an organisation. (AC2.4) Explain the impact of finance on the financial statements. Discuss how different types of finance and their costs would appear in the financial statements of your business. (Task 2 covers assessment criteria AC2.1, AC2.2, AC2.3 & AC2.4 under LO2)

Task 3 (LO3: Be able to make financial decisions based on financial information) Scenario: Hollywood Conservatories Ltd produces a range of quality French Doors, Patio Doors, Conservatories & Windows for customers for 20 years. Due to the rise in demand of products, the Managing Director (MD) of the company has decided to expand production sites across various cities in the UK. MD is in consultation with finance team to evaluate the financial position of the company to know the financial ability to start a new production site in the UK. Youve been asked by the MD to prepare a cash budget for four months ending September 2014 on the basis of the given information: The opening balance of cash on 1st June 2014 is 130,000.Total monthly sales for the four months ending September 2014 are forecasted as:

Months Amount ()

June 150,000

July 156,000

August 135,000

September 190,000

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Cash purchases during the relevant period are:

Months Amount ()

June 55,000

July 46,000

August 86,000

September 74,000

A new supplier has offered the company two months credit starting from June 2014; this means that goods bought on credit in June will be paid for in August and so on. The company plans to make the following credit purchases from this supplier.

Months Amount ()

June 28,000

July 36,000

August 38,000

September 30,000

The company pays rent of 15,000 per month quarterly in advance. Payments are due on 1st June & 1st September. Other expenses are estimated as follows:

Months Amount ()

June 22,000

July 24,000

August 30,000

September 38,000

The company will be repaying a Bank Loan at the rate of 9,000 per month. The last instalment is due in August 2014. Customers are allowed one month credit from the date of sale. Other expenses are paid in cash within the same month.

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Requirement: (AC3.1) (a) Prepare Cash Budget for the four months ending September 2014. Explain the MD of the store as to what does a Surplus and Deficit mean with reference to a cash budget. Give your recommendations on any appropriate actions in case of a surplus or deficit balance situation.

Scenario: Hollywood Conservatories Ltd produces a product at the production site in Essex and incur the following cost: Variable Costs per unit: 65 Fixed Costs per unit: 50 Total Cost per unit: 115 You have been appointed as a manager by the Hollywood Conservatories Ltd and you have been asked by the MD to set the price of that product. Requirement: (AC3.2) (a) Calculate the following: (i) Selling Price per unit (with markup of 30%). (ii) Total profit earned when 800 units are sold. (AC3.2) (b) You have been informed by the MD that the fixed cost is fully recovered if 800 units are manufactured and any more production will not result in additional fixed costs. The company wants to know: (i) The selling price per unit (any additional units manufactured after 800 units) with a markup of 30%. (ii) The total profit earned when additional 400 units of product are sold.

Scenario: Hollywood Conservatories Ltd is considering three investment projects, only one can be selected. You have been asked to identify which project the company should choose for investment. The following information is provided: Discount rate: 10%

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Description Project A Project B Project C

Investment (Cash Outflow) 60,000

65,000 45,000

Year 1- Cash Inflow 20,000

24,750 20,000

Year 2- Cash Inflow 18,500

24,750 15,000

Year 3- Cash Inflow 26,000

24,750 12,500

Year 4- Cash Inflow 32,500

24,750 25,000

Requirement: (AC3.3) You are required to assess the viability of a project using investment appraisal techniques. Briefly explain which project would you recommend and why? (a) Net present value (NPV) (b) Payback Period (years)

(Task 3 covers assessment criteria AC3.1, AC3.2 & AC3.3 under LO3)

Task 4: (LO4: Be able to evaluate the financial performance of a business)

Scenario: The following information relates to the Distribution and Retail business.

Distribution Retail

Sales 40,870 26,540

Cost of sales 30,470 14,110

Gross Profit 10,400 12,430

Total expenses 4,550 9,480

Net Profit 5,850 2,950

Distribution Retail

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000 000 000 000

Fixed assets 4,440 6,550

Current assets

Stock 2,420 2,370

Debtors 60 2,690

Bank 30 10

Total Current Assets 2510 5,070

Total Assets 6,950 11,620

Capital 3,000 5,500

Long Term Loans 2,000 3,170

Current Liabilities 1,950 2,950

Total Liabilities 3,950 6,120

Total Capital + Liabilities

6,950 11,620

Requirement: (AC4.1) Explain the main financial statements produced by a business. (AC4.2) Compare appropriate formats of financial statements for different types of business organisations. (AC4.3) Calculate, compare and interpret financial statements using following ratios for the information given above for both businesses: (i) Gross Profit Margin (ii) Net profit Margin (iii) Current Ratio (iv) Quick Ratio (v) Gearing (Task 4 covers assessment criteria AC4.1, AC4.2 & AC4.3 under LO4)

Grading Criteria (Pass, Merit, Distinction)

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Criteria for PASS Possible evidence that the learner may provide

LO1 Understand the sources of finance available to a business

1.1 Identify the sources of finance available to a business. 1.2 Assess the implication of different sources. 1.3 Evaluate appropriate sources of finance for a business project.

LO2 Understand the implications of finance as a resource within a business

2.1 Analyse the cost of different sources of finance. 2.2 Explain the importance of financial planning. 2.3 Assess the information needs of different decision makers. 2.4 Explain the impact of finance on the financial statements.

LO3 Be able to make financial decisions based on financial information.

3.1 Analyse budgets and make appropriate decisions. 3.2 Explain the calculation of unit costs and pricing decision using relevant information. 3.3 Assess the viability of a project using investment appraisal techniques.

LO4 Be able to evaluate the financial performance of a business.

4.1 Discuss the main financial statements.

4.2 Compare appropriate formats of financial

statements for different types of business.

4.3 Interpret financial statements using

appropriate ratios and comparisons, both

internal and external.

Grade Descriptors for MERIT Possible evidence that the learner may

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provide

M1 Select / design appropriate methods / techniques M2 Select / design appropriate methods / techniques M3 Present and communicate appropriate findings

M1: To achieve M1, you need to make effective judgements about which sources of finance are suitable for your business in task one.

M2: To achieve M2, you have to explore the nature of each finance option; this includes the advantages and disadvantages of each option. You should argue the benefits of your choice of financing and highlight why your choice is fit for your business plan.

M3: To achieve M3, you need to identify the information needs of decision makers which will be presented subsequently through adequate academic research.

Grade Descriptors for DISTINCTION

Possible evidence that the learner may provide

D1 Use critical reflection to evaluate own work and justify valid conclusions.

D1: To achieve D1, The presentation of investment appraisal findings must give clear information that can be used for decision making by the MD of the company.

D2 Take responsibility for managing and organizing activities. D3 Demonstrate convergent / lateral / creative thinking

D2: To achieve D2, you need to show the use of Harvard style of referencing. You must demonstrate an effective approach to independent research. D3: To achieve D3, you should carry out research into ratio analysis and compare & interpret the ratios of distribution and retail business.