Page 1 of 5 XXXXXXXXXXMN7029NX – Financial Decision Making Assessment 2
London Metropolitan University
Master of Business Administration
MN7029NX – Financial Decision Making
Assessment Title Assessment 2 – Individual Coursework
Module Leader Natalie Langley/ Yogesh Bhawnani
Assessment Weighting 70%
Contact Person Tharinda Rajapaksha – Student Services Team
Date of Submission 07th September 2023 at 2359H GST
Learning Outcomes
On successful completion of this module, you will be able to demonstrate the following learning
outcomes:
▪ LO 1 - Critically evaluate company financial performance and make recommendations for
improvement
▪ LO 2 - 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
▪ LO 3 - Communicate financial information, analysis, issues and recommendations clearly and
concisely
Task
The assessment assesses learning outcomes 2 and 3 of the 3 module learning outcomes of this
module.
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”.
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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
cu
ent 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,
ight?”
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
ises 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 i
edeemable loan capital with an interest rate of 7% and it is
cu
ently 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 (please also include a short voiceover recording on the slide of no more
than 5 minutes presenting the executive summary and conclusion of your project)
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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)?
) 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
e in the Appendix of the report and should be calculated in Excel )
) 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 these
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 cu
ent cost of capital and the situation if cost of capital
were 20%.
Please also remember to include a voiceover recording (no more than 5 minutes) on the executive
summary page highlighting your executive summary and conclusions regarding the project.
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 & Voiceover recording)
▪ 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.
Format
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This is an Individual Coursework in the form of a Presentation. You are required to submit a
presentation PPT.
Assessment Criteria
The available marks for the assessment will be awarded as follows;
Assessment Criteria Weighing
Calculation and explanation of WACC for the company 15
A projected cash flow for the project 15
Calculation of NPV and Payback Period using the WACC you have calculated 15
Calculation of NPV and Payback Period using a 20% cost of capital 15
A decision as to whether the project should go ahead and your justification for this
decision
5
An explanation of the benefits and limitations of the 4 main investment appraisal
techniques 10
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.
15
Your report and presentation: executive summary, professionalism, summary recording,
logical flow and conclusion
10
TOTAL 100
Please note that marks XXXXXXXXXXare in the Pass category (P for pass on E-Vision).
Marks XXXXXXXXXXsupport an award with Distinction, 60-69 an award with Merit, 50-59 a Pass award.
Marks below 50 are in the Fail category, meaning that your award is at risk and that you will have to
participate in re-assessment.
Submission
The following submission instructions must be applied and strictly adhered to:
▪ Assessment Cover Slide needs to be attached as the 1st slide of your presentation.
▪ You are required to submit the following components.
▪ Presentation PPT (PPT including the voiceover recording)
▪ You are required to name your submission files as follows;
▪ LMU ID Number_MN7029NX_A2(e.g.; 12345678_MN7029NX_A2)
▪ Submissions must be made to the NEXT Moodle submission point on or before 07th September
2023 at 2359H GST. (Please note that submissions through e-mails will not be accepted under
any circumstances).
Academic Integrity & Plagiarism
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Post Graduate Marking Criteria Mark Range
An outstanding answer, showing evidence of a deep understanding and critical
appreciation of the subject, with judicious choice and appropriate use of sources
going beyond the references provided (e.g., on reading lists). The approach to the
subject demonstrates originality and flair.
80 – 100
An excellent answer, showing evidence of wide knowledge and understanding of
the subject and/or originality of approach, with the development of an
independent critical analysis. Answer draws on judicious choice and appropriate
use of sources going beyond the references provided (e.g., on reading lists).
70 – 79
A comprehensive, well-organised and accurate answer, drawing on a good range
of relevant sources, showing good grasp of relevant theory and the development
of an independent analysis.
60 – 69