Finance

BPP Coursework Cover Sheet

Please use the table below as your cover sheet for the 1st page of the submission. The sheet should be before the cover/title page of your submission.

Programme iMBA

Module name Finance

Student Reference Number (SRN)

Report/Assignment Title

Date of Submission

(Please attach the confirmation of any extension received)

Declaration of Original Work:

I hereby declare that I have read and understood BPP’s regulations on plagiarism and that this is my original work, researched, undertaken, completed and submitted in accordance with the requirements of BPP School of Business and Technology.

The word count, excluding contents table, bibliography and appendices, is ___ words.

Student Reference Number: Date:

By submitting this coursework you agree to all rules and regulations of BPP regarding assessments

and awards for programmes. Please note, submission is your declaration you are fit to sit.

BPP University reserves the right to use all submitted work for educational purposes and may

request that work be published for a wider audience.

BPP School of Business and Technology

Programme: iMBA

Module: Finance

Coursework Assessment Brief

Submission deadline: 28th April 2020 at 23:59 hrs

Submission mode: Turnitin online access

1. General Assessment Guidance

 Your summative assessment for this module is made up of this coursework submission which

accounts for 60% of the marks. The other 40% is assessed in a closed-book exam. You must

pass both components (coursework and exam) to achieve an overall pass for the module.

 The deadline for submission is 28th April 2020 at 23:59 hrs. Please note late submissions will not

be marked.

 You are required to submit all elements of your assessment via Turnitin online access. Only

submissions made via the specified mode will be accepted and hard copies or any other digital

form of submissions (like via email or pen drive etc.) will not be accepted.

 For coursework, the submission word limit is 2,000 words. You must comply with the word count

guidelines. You may submit LESS than 2,000 words but not more. Word Count guidelines can be

found on your programme home page and the coursework submission page.

 Do not put your name or contact details anywhere on your submission. You should only put

your student registration number (SRN) which will ensure your submission is recognised in the

marking process.

 A total of 100 marks are available for this module assessment, and you are required to achieve

minimum 50% to pass this module.

 You are required to use only Harvard Referencing System in your submission. Any content which

is already published by other author(s) and is not referenced will be considered as a case of

plagiarism.

You can find further information on Harvard Referencing in the online library on the VLE. You can

use the following link to access this information:

http://my.bpp.com/vle/mod/data/view.php?d=223&rid=596

 BPP University has a strict policy regarding authenticity of assessments. In proven instances of

plagiarism or collusion, severe punishment will be imposed on offenders. You are advised to

read the rules and regulations regarding plagiarism and collusion in the GARs and MOPP which

are available on VLE in the Academic registry section.

 You should include a completed copy of the Assignment Cover sheet. Any submission without

this completed Assignment Cover sheet may be considered invalid and not marked.

2. Assessment Brief

Introduction

You are a junior accountant for the Tesco Plc, a company listed on the London Stock Exchange. The following items are to be discussed at the next board meeting and the directors have asked you to write a report giving advice on the following areas. Nb: all areas should be answered.

2.1 Financial Analysis

a) A shareholder has raised concerns regarding the financial performance of Tesco Plc compared to its competitors. Using the 2019 Annual Report and any other relevant research, and with the use of Financial Ratios, critically assess the financial and operating performance of Tesco Plc. Your assessment should draw comparison to competitor(s) and sector averages whilst also specifically addressing the shareholders’ pension concern. (You need to choose two competitors). All sources of information used in your analysis should be Harvard Referenced as per the General Assessment Advice above. 25 marks b) Discuss and explain FOUR possible limitations on the usefulness of ratio analysis as a tool for making the above comparisons. 8 marks

2.2 Company Valuation

a) Using the Annual Report used in part one as a basis, calculate the value of Tesco Plc using the following methods:

 Asset-based valuation;

 Dividend Valuation Model (using CAPM to estimate the required return to the shareholders); and

 Comparable P/E ratio.

State any assumptions you make and include in your appendices any excel calculations. Your appendices should also include a spreadsheet of the formula’s used. 24 marks b) Critically discuss the valuation methodologies used above and provide an argument for the amount you expect the Tesco Plc to be worth. 8 marks

2.3 Capital Structure The following information has been taken from the accounts of Absolute plc:

Statement of Financial Position as at 31/12/2019 (extracts)

£’000 £’000

Non-current Assets 1060

Current Assets 745

Total Assets 1,805

Equity Finance

Ordinary Shares (£1) (Note 1) 300

Reserves 150 450

Non-current Liabilities

8% convertible bonds (Note 2) 800

Current Liabilities 555

Total Liabilities 1,805

Notes:

1) The current ex-div market price of the ordinary shares of Absolute is £3.20. Both dividends

and share price are expected to increase by 5% p.a. for the foreseeable future.

2) The 8% bonds contain options to convert in 3 years’ time into 50 ordinary shares of

Absolute plc per bond or in 4 years’ time into 40 ordinary shares per bond. The current ex-

interest market price of the convertible bonds is £125 per £100 bond. If not converted, the

bonds will be redeemed at par in 5 years’ time. Whilst option to convert must be taken at

the timescales above, they will not be exercised until the end of the bond.

3) Corporation tax is at a rate of 19%.

Requirements:

a) Calculate the cost of debt of the convertible bonds for Absolute plc. (10 marks)

b) If a dividend of £0.30 per ordinary share has just been paid by Absolute plc, calculate

it’s the cost of equity.

(5 marks)

c) Calculate the Weighted Average Cost of Capital (WACC) of Absolute plc. (5 marks)

d) ‘The calculation of WACC is straightforward in theory, but difficult in practice’. Critically

evaluate possible difficulties that may be experienced when trying to calculate WACC.

(10 marks)

Professional marks 5 marks

Total 100 marks

3. Marking Guide (for students)

To help structure your Report in a professional manner, please refer to the template available on the VLE. You should use this as a guide on how to structure your work in an organised way. The assignment is marked out of 100. The following table shows the mark allocation and the approach required.

Assignment Part Mark Approach

Professional Presentation 5

Marks are awarded for good use of language, layout, clear structure of the report, appropriate use of appendices and formatting.

2.1 Financial Analysis (a)

25

Marks are awarded for the relevance of points made in respect of the comparison of Tesco’s ratios compared to competitor and industry averages. Marks will be awarded for critical thinking in the interpretation/conclusions drawn from these comparisons.

2.1 Financial Analysis (b) 8

Marks are awarded for points made in respect of the critical evaluation of the limitations of financial analysis using ratios.

2.2 Company Valuation (a) 24

Marks are awarded for accuracy of the calculation of the value of the company using the suggested methodologies. Marks are awarded for relevance of points made and for demonstrating critical thinking in the context of company valuations. The amount you expect Tesco should be worth should make commercial sense.

2.2 Company Valuation (b) 8

Marks are awarded for relevance of points made and for demonstrating critical thinking in the context of CAPM and DVM. Use of prospective PEs vs trailing PEs will gain further marks. Full marks will be awarded for providing relevant insights related to the scenario.

2.3 Capital Structure (a) 10 Marks are awarded for evaluation of each option, choosing the best option and calculating it’s IRR.

2.3 Capital Structure (b) 5

Marks are awarded for calculation of the cost of equity using CAPM.

2.3 Capital Structure (c) 5 Marks are awarded for the calculation of WACC.

2.3 Capital Structure (d) 10

Marks are awarded for identifying the difficulties in calculating the cost of debt and equity used in WACC calculations together with inherent practical limitations in using WACC.

Total 100