Financial Decision Making-6

This module aims to provide practical methods and approaches to enable business managers and entrepreneurs to understand and use financial information to make effective business decisions.  The financial decision-making process demands the understanding of key financial management issues, performance indicators and methodologies to critically analyse accounting and financial information. Strong financial literacy is essential in business.

The module also aims to introduce and examine the preparation and use of accounting and information to inform financial decisions. It provides the understanding of key performance indicators, cashflow management, full costing, working capital management techniques and the budgeting process to manage finances and support management decisions on investment projects and making capital investment decisions. The module concludes with a practice of developing business plan, capital investment decisions and aspects of financing businesses.

The module aims to enable students to be able to:

· ask insightful questions of their financial advisors, to challenge their analysis and to specify their financial information needs

· quickly assess accounting information to evaluate business performance

· create financial forecasts, plans and models, particularly in relation to business planning and investment appraisal.

On successful completion of this module students should be able to:

LO1: Critically evaluate company financial performance and make recommendations for improvement;

LO2: 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;

LO3: Communicate financial information, analysis, issues and recommendations clearly and concisely.

Module Syllabus/Content

1. Introduction to accounting and finance LO1

2. Measuring and reporting financial position LO1, 2

3. Understanding the income statement LO1, 2

4. Cashflow management LO1, 2,

5. Analysing and interpreting financial statements LO1, 2, 3

6. Managing Working Capital  LO1, 2

7. The relevance and behaviour of costs LO1, 2

8. Full costing LO1, 2

9. Budgeting LO1, 2

10. Creating a Business Plan LO2, 3

11. Making Capital Investment Decisions LO2, 3

12. Financing a business LO2, 3

The indicative weekly programme shows the topic likely to be covered in each teaching week, please note that the precise order can change. Please see Weblearn for more detailed timetable.

All assessments are designed to support your learning and help you develop a deeper understanding of the topics covered in your module.

· Formative assessments provide an opportunity to learn and do not contribute to your grade.

· Summative assessment contributes to your overall mark and grades.

Module Assessments (Summative)

Module Assessment Cycle

Assessment 1: Students need to prepare business model of a company , part way through the business simulation, the student teams will prepare a briefing for their shareholders on the latest round of the business simulation explaining their financial performance and positions and plans for the future. They will have 20 minutes to present, with an emphasis on clear and concise communication of the financial issues and proposed actions, group cohesion, and professional behaviour. This assessment covers LO1 and LO3 in the context of the simulation.

Assessment 2: Working individually, students will prepare an investment appraisal of a business project or major sale. They will submit a presentation and a supporting spreadsheet analysis. This address LO2 and LO3.

The module assessment cycle shows all assessment related activities of the module.

How is your work marked?

To pass the module you must achieve an overall minimum mark of 50%. If you pass the module on re-assessment, the component you resit will be capped at a pass mark level of 50%.

The marking process makes sure that our marking of your work is fair and transparent. There is a first marker responsibility for giving your formal feedback and making an initial assessment of the standard of your work by giving it a provisional mark. After this there are two further layers of checking and assurance. It is worth noting that this process means that you are unable to appeal your final marks and/or grades on the grounds of academic judgement.

You will be marked, graded and assessed according to the following PG criteria :

Class	Mark %	Characteristics
Distinction	70 +	Excellent in every way. Knowledgeable, incisively analytical, conceptually sound, widelyresearched and well-structured. Displays a critical and sophisticated understanding of ideas, debates, methodologies and principles. Comprehensively cited and referenced. A degree of flair apparent in the work.
Merit	60 - 69	Very good, well-researched, solid. Addresses question. Sensibly structured and well presented. Evidence of analysis, reasoning and evaluation. May have some errors in emphasis but not in fact, and may be limited in terms of supporting material and breadth of coverage. Appropriately cited and referenced.
Pass	50 - 59	Average to good. Reasonable bibliography. Signs of effort, though more descriptive than analytical. May have some errors but balanced by sound work. May not fully address the question with deficiencies in knowledge and understanding or directness and organisation.
Fail	40 - 49	Fail. Descriptive narrative. May be partly irrelevant. Indiscriminate. Lacks structure. Could be more direct and explicit. Little independent research evident. Short bibliography. May be confused or irrelevant. Heavily based on lecture notes, but a minimum of understanding to justify a pass. Answers by inference.
Fail	0 - 39	Poor. Does not answer question directly. Little evidence of independent reading or lecture notes. Major errors or too brief. Unstructured.
		Very poor indeed. Fails in every respect to answer the question effectively. No evidence of learning, reading or knowledge. Largely irrelevant. Very brief.

Appendix 1

Assessment 1

Assessment Brief

Forming Groups

The presentation group is the same group that you are working with in the business simulation. It is important that you develop into a high performing team, which requires investment of time and commitment. At the outset it is important to agree when you will meet, for how long and who will arrange each session and keep the group log (attached). All group members should contribute to the decision-making process. You will have one hour available in lesson time for each round of the simulation but you may need to work together outside of this time.

The group must made up of 4 members (maximum).

The Assessment

Your Task

You are required to give a 10-minute presentation to the investors in your business on the strategic financial decisions you made, the financial position of the company. Following the presentation there will be 10 minutes available for Question and Answers.

Each student is required to complete an Individual and Group Work Evaluation log (see appendix) and submit to Turnitin with their PowerPoint presentation.

Presentation structure

Using an appropriate template, you should structure your presentation as follows:

· Title page

· Group member list including student IDs

· Presentation Agenda

· Summary Slide

· Financial performance and analysis

· Key decisions taken

· Appendix – Detailed financial information and calculations

· Appendix – Group Contribution Log

All members of the group should present and each presenter should take ownership of a specific section and a sub-heading slide should be included with the presenter’s name showing the content that they presented.

Assessment Marking Scheme  

General Assessment criteria:

The presentation should meet the following criteria:

· It should be clear, concise and professional;

· It should consist of PowerPoint slides and live presentation.

· All members of the group should take part in the presentation;

· It should be no more than 10 minutes long with 5 minutes available at the end for questions.

The assignment is marked out of 100.

Group Log

The group meeting log should be submitted as an appendix slide or slides to your presentation. You do not need to present it.

Describe how you went about tackling the simulation (e.g. did you assign roles, take decisions collectively)
Did anyone take responsibility for making sure that the group submitted the decisions on time for each round?
Did you need to work outside of the time allotted in class and if so how did you organise the group to get together?
How did you resolve conflict in the group?
Do you feel everyone in the group contributed equally to the task?
Is there anything that you would do differently next time?

Appendix 2

Assessment 2

Assessment Brief

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.

The Question

Background information

Smart Home Plc (a fictional company) is a UK incorporated and UK tax resident technology company focussing on the manufacture and retail of internet enabling devices for homes.

The business has been conducting Research and Development on a new smart watch and now needs to make a decision whether to go ahead with launching the product and determining what is an appropriate price for it.

You are the Business Manager responsible for the product launch and the CEO has asked you to prepare a report on the investment in the new product. With the Finance Manager on leave for the next 3 weeks, you are on your own for the presentation.

You have been given the following information from various teams in the organisation.

R&D Team

“We’ve spent quite a lot on developing this project - £450,000 – and it would be a shame if we didn’t get it to market. I would estimate that we would need to spend around and other £60,000 on research costs to get it to a position where it is ready to launch”.

The production department:

“I’ve looked into the production of the smart watch and we will need to purchase a new machine to manufacture at the scale we want which will which will cost us £1,500,000. We have spare capacity in current staff to run the machine, but we will need to hire a “Specialist Supervisor” for the machine – I asked the HR team to let me know what the salary for that person would be, but they haven’t got back to me yet. The machine will last for around 5 years – you need that for your depreciation calculations right?”

The Marketing director

“I’ve done some research on the potential pricing of the watch and likely customer targets and worked with someone in the finance team to look at pricing. I think our wholesale sales price should be £150 per watch over the course of the whole 5 years. The cost of the raw materials makes up 40% of the sales price. My team have estimated that sales for the first 5 years should be as follows:

Year 1	10,000 watches
Year 2	12,500 watches
Year 3	15,750 watches
Year 4	15,750 watches
Year 5	12,350 watches

After 5 years we think that the tech will have advanced beyond this and the product will no longer be attractive so we are assuming that the life of this project will probably only be until then before we need to make a new investment, and we are constantly innovating other projects. The machine will not have any scrap value at this stage.

We’re planning an advertising and marketing campaign costing £545k in year 1 to get started and these costs will the same in in year 2 and 3, and fall to £190k in years 4 and 5. Oh, and HR have just confirmed that the Supervisor salary and benefits will start at £36k in year 1 but we expect inflationary rises to be 3% year on year. That includes our National Insurance costs”

You have investigated how to calculate an appropriate cost of capital (WACC) and gathered the following information:

· The market value of the shares is £2.75 per share and there are 5.5 million ordinary shares in issue. Dividends are expected to continue at 30p per share for the foreseeable future

· The company has £10m in irredeemable loan capital with an interest rate of 7% and it is currently quoted at £95 per £100. The tax rate is 20%.

The business has previously been using an estimated Weighted Average Cost of Capital of 20% and the management team would like to see your calculations using the WACC you have calculated and the original estimate of 20%.

Your task

In the absence of the Finance Manager the CEO wants you to make a presentation to the Board about whether the project should go ahead. The Board are not finance people but are very interested in the techniques that are used to appraise investments and so would like a comprehensive explanation of how you came to your conclusion. In particular they would like you to include the following:

1. Executive summary

2. A projected cash flow for the project over its 5 year life

3. An explanation of cost of capital including:

a. What is Weighted Average Cost of Capital (WACC)?

b. What do we use WACC for?

c. Your calculations of the WACC of capital for the business showing each of the individual components.

4. A financial evaluation of the project using the NPV and Payback Period Methods including:

a. Your calculations of NPV and Payback period for the project using WACC (the detail should be in the Appendix of the report and should be calculated in Excel)

b. Your calculations of NPV and Payback period for the project using the previous business cost of capital of 20% (the detail should be in the Appendix of the report and should be calculated in Excel)

c. A decision as to whether the project should go ahead and your justification for this decisions

5. An explanation of the benefits and limitations of the 4 main investment appraisal techniques.

6. An explanation of the different types of funding available to a company (Long term, short term, equity and debt and others), the advantages and disadvantages of each and a detailed explanation of what a bank might look at in deciding whether to make a loan to a company and the steps they might take for extra protection on the loan repayment.

7. Conclusion

Your report should have an executive summary at the start and a conclusion at the end and you should conclude on the viability of the project at the current cost of capital and the situation if cost of capital were 20%.

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 20%

· 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 Turnitin. A template is provided but you should feel free to adapt and personalise this.

Assessment Marking Scheme  

The assessment is marked out of 100.

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