Unit 6.

8 Financial Decision Making for Managers

Level 6 10 Credits
Sample Assignment
The assignment requires students to carry out calculations and make decisions based on an analysis
of financial information. For task one they should use a set of published accounts that they have
sourced (as in activities above). For other tasks, an example of the information that could be provided
is given below. Other examples can be sourced in accounting text books.
Task 1
a) Using a set of published accounts from a real business organisation, carry out ratio analysis
for two years (note: usually two years figure will be given in a set of published accounts). (1.3)
b) Comment on the business structure and financial structure of the organisation and the
reporting requirements for the structure. Compare this with other possible business structures
and explain the relative advantages of the structure of the chosen organisation. (1.1)
c) Compare the figures for two years and comment on the finances of the business.
Explanations for changes should be sought and explained. Where information is not available,
notes should be made about the information that is required. Note that additional information
may be available in the financial press or on the Internet. (1.2, 1.3)
d) Advise a potential investor on investing in the business compared to placing money in a
deposit account. (Current deposit account interest rates should be sourced from local banks
or Internet for comparison). The investor has 50 000 (or equivalent in other currency) to
invest. (1.2)
e) Suppose the business requires additional finance of 500 000. Advise on a suitable source of
finance giving possible alternatives, implications of each and reasons for your
recommendation. (2.1, 2.2, 2.3, 2.4)
f) Advise on how working capital can be effectively managed within the business using figures
from the accounts and your calculated ratios to illustrate your answer. (3.3)
Task 2
a) Using given budgeting information, prepare a cash flow forecast and comment on the budget
and cash flow. (3.1)
b) Make recommendations for managing cash flow and/or sourcing finance as required. (3.3)
Green Limited is a wholesaler. The budgeted income statements for 6 months are as follows:

Item
Sales Revenue
Cost of goods sold
Salaries and wages
Electricity

Jul
000
114
(64)
(20)
(6)

Aug
000
118
(66)
(20)
(6)

Sept
000
124
(70)
(20)
(8)

Oct
000
104
(59)
(20)
(10)

Nov
000
96
(54)
(20)
(12)

Dec
000
92
(52)
(20)
(12)

Depreciation
Other overheads
Total expenses
Profit/loss for the month

(6)
(4)
(100)
14

(6)
(4)
(102)
16

(6)
(4)
(108)
16

(6)
(4)
(99)
5

(6)
(4)
(96)
0

(6)
(4)
(94)
(2)

Notes:
1.
2.
3.
4.
5.

All customers are allowed one months credit. Sales for June were 106 000.
The opening bank balance is 90 000
Salaries and wages and other overheads are paid in the month they are incurred
Electricity is paid quarterly in arrears in September and December
Inventories purchases are made on one months credit. Junes purchases amount to
64 000.
6. At the end of September, the business needs to pay for a new delivery truck at 25
000
7. At the end of November, the business has agreed to pay 135 000 back to the bank
to reduce a bank loan. This was before they realised they would need a new delivery
van and was based on higher sales predictions for the last three months, which have
had to be revised due to national recession.
Task 3
a) Assess the given projects using accounting rate of return, payback period, Net present values
and internal rate of return. (3.2)
b) Make recommendations based on calculations and explain reasons for recommended choice.
(3.3)
Hanley Manufacturing Limited has two potential projects. They can only invest in one project. The
following information is available on the projects.

Project 1
000
Cost (immediate outlay)
Expected annual operating profit (loss):
Year 1
Year 2
Year 3
Estimated residual value of machinery

Project 2
000
200

100

58
(2)
4
7

36
(4)
8
12

The business has an estimated cost of capital of 10% and uses the straight line method of
depreciation for non-current assets. The business has sufficient funding to meet capital
expenditure requirements for either project.