Hand in location: (tick as appropriate) LONDON STAFFORD
Module Name: Financial Decision Making Module Code: BSP50035-6 Module Leader: Arman Farakish Weighting: 100% Checked by: Ahmad Mlouk
Submission Time and Date: Monday 9 th January 2012 by 13:00 hours
Important Note: In addition to the normal submission via the Business Schools Reception, you are required to submit your assignment through TurnItIn.
You should hand in one copy of your assignment by the time and date above to the appropriate hand-in location at the London SAM Receptions. Fill in the Business School front cover (staple together with your assignment). This must be date stamped. MAKE SURE that you fill in all the relevant details on this form (these are given above!). One copy of the front sheet, date stamped, will be returned to you by the Office. This is your receipt, keep it. You can submit work by post, but you must send it recorded delivery, it must be postmarked two days before the deadline date and a copy must be kept by you in case it is lost in the post. Faxed assignments will not be accepted. In essence, if you fail to submit any assessment for a module you will be given a Grade Point N (Fail due to non-submission) for that module and you will no longer have a guaranteed re-sit entitlement. Any further attempt entitlement will be at the discretion of the Award Board. This regulation applies to all undergraduate and postgraduate awards and at all levels. The regulation change has been incorporated into the Universitys published academic regulations available on the website at the following links.
Postgraduate awards: http://www.staffs.ac.uk/assets/postgrad_regs_tcm44-26797.pdf Assignments must be submitted by the due date. The only circumstance in which assignments can be submitted late is if an extenuating circumstances form is submitted. In these circumstances work may be submitted up to 2 weeks late only (this is not automatic). If the extenuating circumstances are upheld, the assignment will be graded, otherwise a 0 will be awarded.
Maximum Word Length: 2,500 words State the number of words used at the end of your assignment. You may include diagrams, figures etc. without word penalty. A sliding scale of penalties for excess length will be imposed according to the amount by which the limit has been exceeded.
1-10% excess no penalty 11-20% excess 10% reduction in the mark 21-30% excess 20% reduction in the mark 31%+ excess the work will be capped at a pass i.e. 40% or grade point 4.
Financial Decision Making, 2011/12 2 NB. None of the above penalties will be used to change a student mark which is above the pass mark, to one that is below the pass mark. Therefore the maximum penalty for exceeding the word limit will be a reduction to a pass grade. This assignment will assess learning outcomes:
1. Y 2. Y 3. Y
Ethics Disclaimer: I confirm that the Universitys guidelines for ethical approval have been consulted and that all ethical issues and implications in relation to the above project have been considered. I confirm that ethical approval need not be sought.
Name/Signature of Module Leader: Date:
Learning Outcomes Assessed:
LO1: Understand the role of financial management in the performance of organisations and critically appraise alternative sources of finance for business firms LO2: Critically analyse the financial position and performance of organisations using key ratios LO3: Apply advanced decision-making techniques in a range of short term and long term situations
Diagrams, figures, tables, numerical analysis, footnotes, reference list and bibliography are not included in the word count.
Assessment Criteria: Pass: For a pass mark, the examiner will expect you to apply appropriate methods and techniques with some analysis of results obtained.
Distinction: For a distinction, you will need to show depth of understanding of both concepts and details, clarity of exposition and excellence in judging alternatives. Your arguments must be supported by a range of references from the relevant body of literature. Financial Decision Making, 2011/12 3 Plagiarism Warning Summary
Plagiarism occurs if you use somebody else's work in an assignment or exam answer, but fail to state where you got the material from. It can happen in any type of assessment where you are given the questions or tasks in advance. If another student uses your work in their answer(s), both you and they will be punished when caught. Punishments for committing plagiarism can be very severe. 25-30 students get caught in the Business school every year. The details Plagiarism is a form of cheating in which students use the work of others and present it as their own. The University publishes a fully detailed description of what the term plagiarism means on the Universitys main web-site under the heading Procedures for dealing with suspected cases of academic dishonesty. We strongly recommend that you go and read the full document at the above address. Meanwhile, here is an extract of some of the relevant content. You will have committed plagiarism and may be caught, reported and punished (as described below) if you: Copy extensively from the work of others (from sources such as books, magazines, journals, web-sites for example) and submit the work as your own. NB It is acceptable to refer to the work of others as long as you do not use too much, and reference your sources properly. If you do not know how to do this, please follow the guidelines given in the document entitled Adding quotations and references to your written work at this web-site address: http://www.staffs.ac.uk/schools/business/bsadmin/staff/s3/jamr.htm Copy another students work and submit it for assessment under your own name. Allow another student to copy your work and they then submit it for assessment under their name
This last item is of particular importance; few students seem to understand what it means. If, for example, you allow another student to borrow your work and they subsequently copy some that work and present it as their own, you and they will both be punished even though someone else copied your work.
The risks of working with other students Some assessment tasks are explicitly designed for group work, and it will be made clear that a group answer is expected from you. All other tasks are intended as an assessment of your individual comprehension and performance, and group answers are not permitted. In individually assessed forms of assessment your work must be different from that of every other student. Plagiarism can occur in assignments and any examination where the questions are issued to students in advance. In both cases it is possible for you to ask other people about how best to answer the questions or complete the necessary tasks You should be aware that different modules and subjects may have different requirements. In some subjects, answers to questions may, for example, require every student on a module to employ or refer to the same diagram(s), concepts and the like in order to construct an acceptable answer. You should note, however, that even in these circumstances your explanations of what the diagrams mean, and any other writing referring to any common diagrams and concepts should all be in your own words. Moreover, the situation may be very different on other modules, where the submission of work that has a very similar structure, or the use of very similar materials such as concepts, diagrams, quotations and the like, to that of another student, may lead to you being accused of plagiarism. Financial Decision Making, 2011/12 4
The picture is complicated and, unfortunately, it is not possible to give advice that is directly relevant to every module you study. If you are unsure about how to avoid plagiarism in any specific module, then rather than hoping and guessing, you should ask for guidance from the member of staff who delivers that module.
Our overall advice is straightforward; by all means discuss how best to answer questions or complete tasks with your colleagues, but when it comes to actually writing your answers - DO IT ALONE!
What happens if you get caught?
Contrary to some student rumours, getting caught and being punished for committing plagiarism is not an extremely unusual student offence. The Business School typically uncovers and reports for disciplinary action 25 to 30 students each year for plagiarism
Examination Boards may punish offending students in any manner that they deem fit. Typical punishments Boards may choose range from reducing grades, making students re-sit modules, through to failing students on a module or an entire award. The University regards this form of cheating as a serious offence. Full details of the range of likely punishments can be found on the Universitys web-site under the heading Procedures for dealing with suspected cases of academic dishonesty.
Ludlow Electronics PLC is a well-established, listed, Leeds-based UK company with sites throughout the north of England, engaged in the sourcing and distribution of small branded consumer electronic goods. The companys financial year end is 30 th November and extracts from the Profit & Loss Accounts and Balance Sheets of the company are shown below:
Profit & Loss Accounts m 2010/11 2009/10 Turnover 545.0 515.0 Cost of Sales (340.0) (330.0) Gross Profit 205.0 185.0 Operating Expenses (125.0) (100.0) Profit before Interest and Tax 80.0 85.0 Interest Payable (12.0) (9.0) Profit before Tax 68.0 76.0 Corporation Tax (30%) (20.4) (22.8) Profit after Taxation 47.6 53.2 Dividends (30.0) (30.0) Retained Profit for Year 17.6 23.2
Balance Sheets m m m Fixed Assets Land & buildings 93.5 72.2 Plant & equipment 65.5 55.0 Goodwill 20.0 25.0 179.0 152.2
Current Assets Stock 64.8 68.0 Debtors 106.2 92.0 Short term investments 23.0 7.0 Cash at bank 5.0 2.0 Total Current Assets 199.0 169.0
Creditors due within one year Creditors 62.5 54.0 Bank Overdraft 15.5 15.4 Loans 15.0 8.0 Lease liabilities 8.0 7.0 Corporation Tax 20.4 22.8 Total Current Liabilities 121.4 107.2
Net Current Assets 77.6 61.8
Total Assets Less Current Liabilities 256.6 214.0
Creditors due after one year Loans 60.0 35.0 Lease liabilities 15.0 15.0
Net Assets 181.6 164.0
Capital and Reserves Ordinary Share Capital 50.0 50.0 Share Premium 89.0 89.0 Retained Profit 42.6 25.0 Shareholders' Funds 181.6 164.0 Financial Decision Making, 2011/12 6 The nominal value of the shares is 0.25 each and the market value of the shares at 30 th November 2010 was 3.25, a reduction of 0.35 compared to that at the previous year end. The long term loans are secured on the companys land and buildings. In the consumer electronics sector, typical gross margins are around 34%, net margins 16% and return on capital employed 33%. Ludlow Electronics main competitor currently has a P/E ratio of 15 and a dividend yield of 4.5%. Average working capital ratios in the industry are: Stock holding 60 days Debtors outstanding 70 days Creditors outstanding 65 days
The company now wishes to expand its activities into the remainder of the UK market and needs to raise an additional 85 million to finance this planned growth. The current market share price is 3.45 per share and Ludlow Electronics advisors have suggested either: a) a rights issue at 2.95 per share or b) the issue of convertible bonds at par, carrying a coupon rate of 9% per annum, redeemable in 8 years time. Prior to redemption, the bonds may be converted into ordinary shares at any time at a rate of 24 ordinary shares per 100 nominal value of bond stock.
The companys plans for 2011/2012 indicate a profit before interest and tax of 87 million and a further increase to 115 million in 2012/2013 when the benefits of the proposed investment are expected to be realised. Dividends are expected to be maintained going forward at the same rate per share as for 2010/11 and the rate of Corporation Tax is assumed to remain unchanged at 30%.
Financial Decision Making, 2011/12 7 Required (a) Calculate the key financial ratios for Ludlow Electronics PLC for both 2010/11 and 2009/10. Your selection of ratios should ensure measurement of the companys performance in each of the following categories: Profitability 4 ratios Activity 5 ratios Capital Gearing 4 ratios Liquidity 2 ratios Investor 6 ratios (23%) (b) Based on your assessment on the key financial ratios that you have calculated for both years and other available information, critically appraise the performance of the company and suggest ways in which financial performance could be improved. (30%) (c) If it is decided to raise the additional funds by a rights issue, based on the information provided, calculate: 1. the number of new ordinary shares to be issued 2. the theoretical ex-rights price 3. the value of the rights per one new share (5%) (d) If it is decided to raise the additional funds by the issue of convertible bonds, calculate the conversion price for the bonds and also the conversion premium at the date of issue based on the information provided. (3%) (e) Using projections, critically evaluate each of the alternative proposed methods of raising the additional finance, referred to in c) and d) above, taking into account the impact that the funding methods will have on the key profitability and gearing ratios of the company in 2011/12 and 2012/13. (29%) (f) Critically assess the services that an investment bank could provide to Ludlow Electronics in connection with the raising of additional finance. (10%)
It is important that you research the relevant topics and cite appropriate literature to support your analysis, arguments and evaluations. This will be reflected in the marking.