This is a solution of Managing Financial Resources and Decisions Assignment in which we discuss Developing business

 Managing Financial Resources and  Decisions

The purpose of this assignment is to: 1.       Test your understanding of the sources of finance available to a business 2.       Test your understanding of the implications of finance as a resource within a business 3.       Test your ability to make financial decisions based on financial information 4.       Test your ability to evaluate the financial performance of a business.

Scenario The Citilink Bus Company (“Citilink”) was established in 2000 to operate a bus service across a city with 1 million inhabitants.  The bus company was created by an indigenous businessman and operated as a sole trader.  In 2007, however, it experienced financial resources difficulties and a large international transport business was admitted as partner of the company.  The company became a limited company in 2009, aiming at floating at the stock exchange in near future.

Task 1 The financial difficulties in 2000 make Citilink understand the importance of financial management.  In view of the global financial fragility, Citilink’s board of directors would like to take a review on the financial status of the company.  As an independent business skill consultant, you have to write a FORMAL BUSINESS REPORT to the Board to address the following issues: (a)    Identify the sources of short/medium and long term finances available to Citilink now and in near future.  You may refer to Appendix I to support your findings, if needed. (LO1.1) (b)   Assess the legal, financial, control, and bankruptcy implications of the different sources identified at Task 1(a) above. (LO1.2) (c)    Analyse the finance costs of the respective sources of finance, as identified at Task 1(a) above. (LO2.1)

Task 2 Citilink has just completed its 2010/11 business management accounts.  The directors are going to review the financial statements in the next board meeting.  You have to prepare a FINANCIAL REVIEW REPORT for presentation at the board in the capacity of the Finance Director of Citilink.  In order to have a critical review, you have collected the financial statements of Grayline, the market leader in the bus transportation industry.  All the financial statements are at June 30.  The report should cover the following issues: (a)    Discuss the formation of financial statements by introducing debit, credit, books of prime entry, accounts and ledgers, trial balance, final accounts. (LO4.1) (b)   As the company legal form evolved from sole trader, to partnership, and finally to corporation during the last 10 years, a lot of changes have been made on the format of financial statements.  The indigenous founder requests you to explain and compare appropriate formats of financial statements for difference forms of companies. (LO4.2) (c)    Explain how different types of finance and their costs appear in the financial statements of Citilink and the interaction of assets and liabilities on the balance sheet, using the financial statements at Appendix I to illustrate.  (LO2.4) (d)   Explain the structure and purpose of main financial statements, i.e. balance sheet, profit and loss account, cash flow statement, and notes, illustrate with the financial statements at Appendix I as far as possible. (LO4.2) (e)   Discuss the changes to reporting requirements under the International Accounting Standards (IAS) e.g. statement of comprehensive income and statement of financial position, illustrate with the financial statements at Appendix I as far as possible (LO4.2) (f)     Calculate and interpret with writing the financial statements at Appendix I using appropriate ratios, i.e. profitability, liquidity, efficiency and investment.  Comparison should be made with prior year result and externally with Grayline.  You should show clearly your working for the computation of ratios. (LO4.3)

Task 3 Citilink has a business line currently owns and runs 350 sightseeing buses and has a turnover of $10 million per annum.  The current system for allocating jobs to drivers is very inefficient.  Citilink is considering the implementation of a new computerised tracking system called “DigiLink”.  This will make the allocation of jobs far more efficient. You are the financial analyst of the business line.  You have been asked to perform some calculations to help the Finance Director to decide whether DigiLink should be implemented.  The project is being appraised over 5 years. The costs and benefits of the new system are set out below. The central tracking system costs $2,100,000 to implement.  This amount will be payable in three equal instalments: one immediately, the second in one year’s time, and the third in two years’ time. Read more : Business Management Assignment Help Depreciation on the new system will be provided at $420,000 per annum. Staff will need to be trained how to use the new system.  This will cost $425,000 in the first year. If DigiLink is implemented, revenues will rise to an estimated $11 million this year, thereafter increasing by 5% per annum (i.e. compounded).  Even if DigiLink is not implemented, revenues will increase by an estimated $200,000 per annum, from their current level of $10 million per annum. Despite increased revenues, DigiLink will still make overall savings in terms of vehicle running costs.  These cost savings are estimated at 1% of the post DigiLink revenues each year (i.e. the $11 million revenue, rising by 5% thereafter, as referred to in note iv). 6 new operators will be recruited to manage the DigiLink system.  Their salaries will cost the business line $120,000 per annum in the first year, $200,000 in the second year, thereafter increasing by 5% per annum (i.e. compounded). The business line will have to take out a maintenance contract for the DigiLink system.  This will cost $75,000 per annum. Interest on money borrowed to finance the project will cost $150,000 per annum. The business line’s cost of capital is 10% per annum and the maximum allowable payback period is 2.5 years. Ignore taxation. (a)    Assess the viability of the DigiLink project using payback period, accounting rate of return, net present value, and internal rate of return. (LO3.3) (b)   Evaluate appropriate sources of finance for the DigiLink project in terms of suitability and their respective advantages and disadvantages. (LO1.3)

Task 4 Citilink will start a new business line on 1st July, 2011 to make and sell bus souvenirs.  The target sales and production volume are 525,000 in next year.  The following projected data is available. Total costs                                                                                                                           $1,428,000 Costs as percentage of sales Raw materials                                                                                                                    15% Direct labour                                                                                                                      20% Variable production overheads                                                                                 11% Fixed production overheads                                                                                       10% Other costs                                                                                                                         12% Working capital statistics Average raw material holding period                                                                      4 weeks Average finished goods holding period                                                                  4 weeks Average debtors’ collection period                                                                          6 weeks Average creditors’ payment period on: –        Raw materials                                                                                                    4 weeks –        Direct labour                                                                                                      1 week –        Variable production overheads                                                                 8 weeks –        Fixed production overheads                                                                       5 weeks –        Other costs                                                                                                         12 weeks Other relevant information –        Assume all operation will start at 1st July, 2011. –        Assume sales are the same every month once the souvenirs are available for sales. –        All finished goods inventory values include raw materials, direct labour, variable production overheads and apportioned fixed production overhead costs. –        Assume there are 52 weeks in one year. –        Assume that production and sales volumes are the same. As an accountant of the new business line, you have to write a BUDGET PROPOSAL to the Finance Director of Citilink.  The proposal should include the following issues: (a)    Identify who might be involved in the working capital decision making of the new business line and assess the information needs of them individually. (LO2.3) (b)   Calculate with explanation the unit costs of the souvenirs.  You should state your assumption, if any. (LO3.2) (c)    Determine the price of the souvenirs and explain any other information that might be relevant for deciding the price (LO3.2) (d)   Discuss how sensitivity analysis will help the cost and pricing decision of the new business line (LO3.2) (e)   Estimate average working capital required by the new business line for the year.  Explain overtrading and analyse whether there is any overtrading problem if the new business line only reserves $150,000 working capital. (LO2.2) (f)     Prepare a monthly cash budget for the new business line for the year ended 30th June, 2012.  Identify the timing of cash surplus and shortage by assuming zero cash at 1st July, 2011.  You should clearly state your assumption, if any. (LO2.2) (g)    Identify other budgets that may be helpful to analyse and monitor the new business line.  Explain. (LO3.1)

Student guidelines Word limit 3,500 words Clear and professional presentation

Sources of information Remember you must include five citations or quotations in your answer. Use the Harvard referencing system. You can cite either books/journals or websites in your answer. To help you do this it is best to note sources used as you research the assignment answer. It need not be five different sources but try to use more than one source!

Outcomes and assessment criteria Learning outcomes On successful completion of this unit a learner will: Assessment criteria for pass The learner can: 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 implications of the 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 costs 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 make pricing decisions 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 difference types of business 4.3 Interpret financial statements using appropriate ratios and comparisons, both internal and external.

Performance Criteria To achieve a PASS GRADE the evidence must show that the learner is able to meet all of the learning outcomes: LO1 - Explore the sources of finance available to a business. Evaluate sources of long and medium term finance Understand the implications of different sources of finance for gearing and interest cover ratios and their relationship to risk LO2 - Analyse the implications of finance as a resource within a business Show an ability to use and draw conclusions from a cash budget Appreciate techniques of working capital management Understand and explain cost of finance for Citilink LO3 - Make financial decisions based on financial information Carry out  investment appraisals using different techniques Evaluate the different techniques of investment appraisal Understand principles of pricing good practice. Click Here LO4 - Analyse and evaluate the financial performance of a business Explain the purposes of financial statements. Identify differences in financial statement format across different business types Understand and evaluate the use of ratio analysis drawing upon a wide range of ratios The work adequately covers the brief but some omissions and confusions exist Identify differences in balance sheet format across different business types Understand and evaluate the use of ratio analysis drawing upon a wide range of ratios The work adequately covers the brief but some omissions and confusions exist To achieve a MERIT GRADE the evidence must show that the learner is able to: M1- Identify and apply strategies to find appropriate solutions Effective judgments have been made on the basis of accurate cash flow forecasting Good knowledge of working capital management has been displayed Good knowledge of appropriate sources of medium and long term finance are displayed M2 – Select design and apply appropriate methods/techniques Effective use has been made of appropriate investment appraisal techniques and other calculations e.g. investment appraisal and cash budget calculation. M3 – Present and Communicate Findings A clear, concise and logical flow has been achieved Use of Harvard referencing throughout Relatively few omissions and confusions exist To achieve a DISTINCTION GRADE the evidence must show that the learner is able to: D1 - Use critical reflection to evaluate your own work & justify valid conclusions ·         A reflective approach will be evident throughout and in particular in areas like evaluation of sources of business finance and uses /limitations of ratio analysis D2 – Take responsibility for managing and organising activities. Independent research, outside of what has been provided in class, has been utilised to prepare a thorough set of answers D3 – Demonstrate convergent, lateral & creative thinking. Ideas are evaluated for their validity & realism in the context of the answers An attempt is made at an evaluation of optimal approaches to financial management conclusions No real confusions or omissions exist

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