Assessment Brief 7BSP1245 Analysis of Investment Appraisal in International Business
Module Title: | Finance for International Business | Module Code: | 7BSP1245 |
Assignment Format & Maximum Word count | INDIVIDUAL Report, 2,500 words +/-10% | Assignment Weighting: | 60% |
Coursework Submission: |
Time:23.59
| Coursework return Date returned to students: |
25 January 2023
|
Module leader | Arthur Dyirakumunda | First marker | Arthur Dyirakumunda Dr Nurgul Chambers, Dr Edna Stan-Maduka |
Internal Moderator |
Approved ☐
| Module Board name | PG Board A |
External Examiner |
Approved ☐
| Module Board date |
Assessment Criteria |
Learning Outcomes: Knowledge and Understanding tested in this assignment: |
1. evaluate strategies available to an organisation to enable the creation and maintenance of value. 2. assess the financing choices available to organisations and the relevance of capital structure. 3. analyse the financial and operating risks faced by organizations and the strategies for mitigating these risks. 4. research the specific issues relating investing and raising finance on an international basis |
Learning Outcomes: Skills and Attributes tested in this assignment: |
5. analyse financial statements and interpret the results in the context of value creation. 6. critically evaluate capital investment proposals both domestic and international including estimation of component and overall capital costs. 7. devise strategies for identifying and managing foreign exchange risk and the risks of international investment. 8. devise financial strategies f or enhancing enterprise value. |
Feedback /Marking criteria for this Assignment |
Performance will be assessed using HBS Grading Criteria and Mark scheme. For each day or part day up to five days after the published deadline, coursework relating to modules submitted late will have the numeric grade reduced by 10 grade points until or unless the numeric grade reaches 50 for level 7 (PG). If a submission is more than 5 working days after the published deadline, a grade of zero will be awarded. Where the numeric grade awarded for the assessment is less than 50 for level 7, no lateness penalty will be applied; |
Detailed Brief for Individual/ Assessment |
Assignment Title: Investment Appraisal Report
Description of the assignment:
|
7BSP1245 Finance for International Business
Coursework Brief
Coursework, Semester A 2022_23
Loop plc (t0 = 2022)
Loop plc is a technology company based in Hertfordshire (United Kingdom), specialising in research and development of wireless electronic gaming gadgets. The company sells its products throughout the UK, Western Europe, South Korea, and USA. The company has developed a new portable games console (The Galactic Lite) that will be sold in these international markets. Thus, the firm will have cash flows denominated in, GB sterling £, € Euro, Won and US$ dollar. The unit figures given below are the sterling equivalent of these cash flows at current exchange rates. The British pound Sterling £ is expected to severely fluctuate against world currencies over the next 5 years.
The company spent £3,000,000 on R&D on the Galactic Lite wireless gadget in the past few years. Due to the rapid changing nature of the electronics gaming industry and the uncertainty surrounding rising inflation, recession in the world economies and impacts of the UK exiting the European Union, the company directors are faced with a dilemma of how to drive the new product forward. The directors are now faced with two mutually exclusive options to exploit the financial potential of the new product.
Proposal 1: Loop plc could go ahead and manufacture the electronic gaming gadget itself. The company will need to acquire new manufacturing equipment at a cost of £180 million. The equipment could be financed through a rights issue or bond issue and would be bought on the last day of the company’s current financial year. Investment in working capital will need to be £45,000,000 and this is recovered at the end of the project. The estimated scrap value of the equipment at the end of the production period is £1,000,000. Loop plc has a large warehouse which will be used as a factory for manufacturing the device. The warehouse is currently rented out to another company for £20,000,000 a year. Loop plc is set to sell the new product at £320 per unit (current price). Selling price inflation is expected to be 3% per year from the first year.
Variable cost is £160 per (current price). Variable cost inflation is expected to be 4% per year from the first year.
Marketing expenses including online advertising will be £30,000,000 (current price) a year subject to 2% annual inflation. Additional fixed costs will be £25,000,000 a year and not subject to inflation. Loop plc plans to use the straight-line depreciation method on manufacturing equipment. The directors set a target accounting rate of return on investment of 30 per cent and a payback period of three years for all projects. Loop plc estimates the future sales from next year onwards as follows (assuming a product life of 5 years due to competitions):
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Year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 |
Number of units | 500,000 | 1,200,000 | 1,500,000 | 2,000,000 | 600,000 |
Loop plc pays corporation tax at a rate of 20% per year, one year in arrears. Tax is paid on the operating cashflow(profit).
Loop plc pays corporation tax at the rate of 20% on its taxable profits which is paid one year in arrears. (Assume that operating cash flow is the same as taxable profit).
Ordinary Share Capital
A recent report by financial consultants suggests that the Loop plc’s equity has a beta of 1.4 and reported that medium term UK government bonds are earning 2.89% per annum. In addition, the report noted that the FTSE All-share index returned an average of 11.6% in each of the last three years.
Loop plc ordinary shares are trading on the stock exchange at £1.65 whilst their debenture/bond is trading at £104.70.
Inspection of the Loop plc balance sheet reveals the following:
No of Shares
Ordinary shares par value £1 £20,000,000
•Debt Capital:
10% debentures are due to mature in 4 years at par. The current market value of each debenture is £104.70, and the total book value of the debentures is £5m.
8% irredeemable bonds are trading at £97. The interest has just been paid. There are £2m nominal value worth of irredeemable bonds, as per the statement of financial position.
•The corporation tax rate applicable is 20%.
Loop plc uses its Weighted average cost of capital as the cost of capital (discount factor)
Proposal 2: Loop plc could sell the patent rights to another business (Nitro Dynamic Ltd) that specialises in manufacturing electronic products for a fee of £70 million. It will be payable immediately in a one-off instalment. Loop Plc will not be allowed to manufacture any of the new products once the patent is sold.
Required
You are required to produce a written business report in which you provide a firm recommendation on a financial basis as to whether Loop plc should invest in the new machinery or sell the patent right. You are required to apply a range of methods to carry out the investment appraisal of the project.
Your answer should be presented in the form of a report of 2500 words total (excluding
the reference list). You must also submit an Excel spreadsheet containing your cashflows (NPV, Payback, IRR and ROCE) and cost of capital (WACC) calculations.
Your report should
i) Evaluate your findings (Cashflows, NPV, Payback, ROCE, IRR), referring to appropriate theory in investment appraisal, cost of capital and risk.
ii) Discuss sources of finance that could be considered and their possible impacts on risk, firm value, ownership, and control.
iii) Explore the international non-financial factors management would need to consider in addition to financial factors before making a final decision on the project.
iv) Also, comment on the potential impact of foreign exchange risk on the project. You should support your arguments with relevant theory and calculations and indicate any non-financial matters you feel should be taken into consideration.
Only relevant cash flows, which are the incremental cash flows arising as the result of an investment decision, should be included in the investment appraisal.
Relevant cash flows include opportunity costs and incremental investment in working capital.
Submission requirements:
You should use Arial font size 12 and 1.5 line spacing. Exceeding the word count by 10%
or more or deviations from the formatting instructions will attract a penalty of up to 5 marks
The hand-in deadline for submission is 23.59 on 18 December 2022.
For deferred coursework, submissions up to 24 hours late will attract a daily late 10% penalty. Reports submitted more than 5 days late will attract a mark of zero.
Submit one electronic copy via Studynet/Canvas as a Word file. In addition, submit an Excel
spreadsheet containing your calculations. Non submission of the spreadsheet will incur
loss of marks
This is an individual assignment and the report submitted should be entirely your own
work.
This assessment is subject to anonymous marking so do not put your name on any
document you submit. However, you must put your SRN on each document you submit.
Guidance for the preparation of your report.
The purpose of this assignment is simply to give you the opportunity to demonstrate
that you have acquired the knowledge and skills identified in the Module Outcomes and
that you can apply them in a typical business situation. Do refer to the assessment
criteria given on the Module site which gives an outline of how marks will be awarded.
You should approach the task as a business manager dealing with a ‘real’ business and
should:
a) Adopt a coherent approach to dealing with the set task with a clearly stated
business purpose.
b) Identify an appropriate theoretical dimension and consider the implications
for practice.
c) Adopt appropriate analytical methods and a critical perspective.
d) Refer to empirical work where appropriate.
Task Specific Assessment Criteria: Coursework
Communication Skills (Written)
Marks will be awarded for a) for the physical presentation and layout of your report, b)
adopting logical well supported (ie using appropriate citations) arguments, c) the extent
to which the report is accurate, brief, concise, and clear, d) the standard of English, and,
e) compliance with standard Harvard referencing. Equal account will be taken of each
element.
Knowledge & Understanding
You should establish a clear business focussed conceptual basis for your report – ie you
need to show what you are seeking to achieve and why it is important for managing the
Loop plc business (supported using appropriate citations).
Synthesis
From the case data given you should identify the nature of the decision(s) facing
Loop plc and identify appropriate theory to support the approach you adopt
and give your reasoning. which analytical tools are consistent with ‘business focused
conceptual basis’ referred to above? (Supported using appropriate citations).
Analysis
Using the case data given, you should apply the analytical methods identified in the
previous section and evaluate the impact on the business in relation to the ‘business
focussed conceptual basis’ referred to above.
Evaluation
Conclusions should be arrived at based on your analysis of Loop plc
issues: ie what do the results of your analysis tell you? In your conclusions section you
should summarise the results of your analysis. Your recommendations will be assessed on
the extent to which they are linked to the analysis of Loop plc issues and on
the extent to which they are theoretically coherent – that is the extent to which they are
consistent with the theoretical/conceptual base you establish
Student Support and Guidance
For further help, contact your module leader in their drop-in hours or by email.
Use the Grading Criteria and Mark Scheme to help improve your work.
Go to CASE workshops, use the CASE website and drop-in hours www.studynet.herts.ac.uk/go/CASE/
Academic English for Business support is available through daily drop-ins from the CASE office. See the CASE workshop timetable on the CASE main website page for details.
Make full use of Library search to identify relevant academic material and the ‘Subject Toolkit for Business’ which contains links to other Information Databases and the Information Management contact details. (http://www.studynet1.herts.ac.uk/ptl/common/LIS.nsf/lis/4DAF5390094771C2802575ED004212BF)
Tutors allow students to test their work using Turnitin. Guidance on submission to Turnitin via StudyNet can be found by using the following link. http://www.studynet1.herts.ac.uk/ptl/common/asu.nsf/resource+library/TURNITIN+FOR+STUDENTS+2016+USER+GUIDE.pdf/$FILE/TURNITIN+FOR+STUDENTS+2016+USER+GUIDE.pdf
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PG Grading Criteria for HBS Individual Report Module Code: Lecturer: Student ID number:
REPORT | Presentation & structure | Intellectual Curiosity (Quality of academic sources) Use & presentation of Harvard Referencing | Content/ Terms/ Findings/ Definitions/ Calculations | Business Application & Integration of Data/Literature | Discussion /Analysis /Critical evaluation &/or Reflection |
Task details lecturer to amend to suit | Follows report structure & keeps to word limit of … | Follows Harvard style for in-text citation & Reference List Use a minimum of … sources | Content included – specify requirements as in module site & coursework guidance | Integration & application of information from coursework guidance/module site | Line of argument, development of discussion add instructional verbs to suit the task & level |
Marks | |||||
90 – 100 Outstanding | Outstanding presentation & report structure, with numbered paragraphs, list of contents/figures &appendices. Articulate & fluent academic writing style with ideas cross referenced. No grammatical / spelling errors. | Outstanding selection of quality sources, well beyond core & recommended resources. Outstanding standard of Harvard referencing within text & consistent use of Harvard referencing system. Accuracy of in-text references & full details shown in Reference list. | Outstanding exploration of topic showing excellent knowledge & understanding through thorough & appropriate research. Impressive choice and range of appropriate content. | Outstanding business insight & application. Outstanding integration of literature/data into work. Very impressive breadth and depth. | Outstanding level of discussion/analysis/ critical evaluation &/or reflection. Highly developed/ focused work, with thorough consideration of all possibilities and aspects of the topic. |
80 – 89 Excellent | Excellent presentation & report structure, with numbered paragraphs, list of contents/figures, appendices & cross referencing. Articulate & fluent academic writing style. Only minor errors. | Excellent selection of quality sources. Evidence of independent searching beyond core & recommended resources. Excellent standard of Harvard referencing within text & consistent use of Harvard referencing system. Accuracy of in-text references & full details shown in Reference list. | Excellent level of knowledge & understanding demonstrated. Evidence of appropriate reading. Covers all relevant points & issues. | Excellent business insight & application. Excellent integration of literature/data into work. Impressive breadth and depth. | Excellent level of discussion/analysis/ critical evaluation &/or reflection. Clearly developed points all of which are relevant to the topic |
70 – 79 Very Good | Very good presentation & report structure, paragraphing, use of numbering, list of contents/figures, appendices & cross referencing. Fluent academic writing style. Very few grammatical errors & spelling mistakes. | Very good selection of mostly quality sources beyond the recommended resources. Few irrelevant/poor quality sources used. Very good standard of Harvard referencing within text & consistent use of Harvard referencing system. Accuracy of in-text references & full details shown in Reference list. | Very good level of knowledge & understanding demonstrated. Covers most relevant points & issues. Few errors / omissions in content/calculations. | Very good business insight & application. Very good integration of literature/data into work. Very good use of literature/data with breadth and depth. | Very good level of discussion/analysis/ critical evaluation &/or reflection. A few less relevant ideas/points or would benefit from further development &/or evaluation/comparison. |
60 – 69 Good | Good clear presentation & report structure, use of numbering & appendices. Writing is mainly good with some flow and spelling &/ or grammatical errors seldom impede understanding. | Good selection of quality sources but some irrelevant/poor quality sources used beyond the recommended reading. Good standard of Harvard referencing within text & consistent use of Harvard referencing system. Accuracy of in-text references & full details shown in Reference list. | Good grasp of the topic & some of its implications presented. Good knowledge & understanding is demonstrated. Minor errors / omissions in content/ calculations. | Good business insight & application. Good integration of literature/data into work. Good use of literature/data with adequate breadth and depth. | Good level of discussion/analysis/ critical evaluation &/or reflection but more ideas/points could be addressed or developed further. |
50 – 59 Clear Pass | Satisfactory basic report structure. Not always written clearly & has grammatical & / or spelling errors which impede understanding. See CASE with feedback | Satisfactory: Some quality sources used. Research did not go beyond the recommended sources. Satisfactory referencing within text & consistent use of Harvard referencing system. See CASE/ Information Managers (LRC) with feedback | Satisfactory content / level of knowledge of the topic. Addresses most of the task. Some errors / omissions in content/ calculations. May benefit from further research. | Satisfactory business insight & application. Limited integration with literature/ data. Use of literature/data but limited in breadth or depth. | Satisfactory: basic evidence of discussion/analysis/ critical evaluation &/or reflection but some points irrelevant or superficially made so need further development. See CASE with feedback |
40 – 49 Marginal Fail | Weak report format. Limited or poor structure. Muddled work with many spelling & / or grammatical errors. Must see CASE with feedback | Weak: Limited evidence of appropriate research. Some use made of recommended reading, but the majority of sources are irrelevant/of poor quality. Weak use of Harvard referencing system with errors & inconsistently applied. Must see CASE/ Information Managers (LRC) with feedback | Weak: limited content / knowledge/ calculations. Limited or muddled understanding of the topic/question. Does not meet all the learning outcomes. | Weak: unsatisfactory evidence of business application & insight Work needs to show better links between practical application and theory. | Weak: limited evidence of discussion/analysis/ critical evaluation &/or reflection. More development & comment needed. May need to do more than describe. Must see CASE with feedback |
20 – 39 Clear Fail | Inadequate report format and poor paragraphing / signposting. Inappropriate writing style Poorly written &/or poor spelling & grammar. Must see CASE with feedback | Inadequate: Little evidence of appropriate research. Few quality sources used from recommended reading. Inadequate use of Harvard referencing with many errors &/or inconsistencies. Must see CASE/ Information Managers (LRC) with feedback | Inadequate: Lacking in relevant content/ knowledge/calculations. Content irrelevant / inaccurate. Does not meet all the learning outcomes. | Inadequate: Lacks evidence of business application & insight. Some literature missing or irrelevant to topic. | Inadequate: Lacking / inadequate level of discussion/ analysis/critical evaluation & /or reflection. Descriptive. Must see CASE with feedback |
0 – 19 Little or Nothing of merit | Nothing of merit: Poorly written work, lacking structure, paragraphing / signposting. Many inaccuracies in spelling & grammar. Must see CASE with feedback | Nothing of merit: No evidence of research. No use made of recommended reading. Sources are irrelevant & of poor quality. No or little attempt to use the recommended Harvard referencing system. Must see CASE/ Information Managers (LRC) with feedback | Nothing of merit: Unsatisfactory level of knowledge demonstrated. Content used irrelevant / not appropriate/ to the topic. Does not meet the learning outcomes. | Nothing of merit: No evidence of appropriate business application & insight. | Nothing of merit: Unsatisfactory level of discussion/analysis/critical evaluation &/or reflection Must see CASE with feedback |
KEY ACTIONS To achieve a higher grade, next time you need to… (Where to go?) Who can help?) | 1. 2. 3. | ||||
Marking grid | _ | |
| Marks | |
20 | ||
Clarity, Knowledge & Understanding. | ||
An introduction with report objectives should be presented. Any rational and assumptions. Establish a clear business focussed conceptual basis for the report – i.e., you need to show what you are seeking to achieve, and method/approach used. The investment approach methods/techniques should be adopted and discussed. (10 marks for introduction with report objectives,10 marks for methodology/technique discussion | ||
Excel sheet, Computation and Results presentation | 20 | |
Clear excel spread sheets provided with the calculated data/results to evaluate the investment. Tables can also be provided if they provide key data (Calculate WACC,NPV,ROCE,Payback,IRR) | ||
Results analysis, Synthesis /Creativity /Evaluation & 15 marks | 30 | |
Discussion of findings, the nature of the decision (Discuss the results calculated here and use results to evaluate decision. | ||
Financing risk, on-financial factors and Value creation discussion) 15 marks Provide a discussion of alternative financing, FX risk, other non-financial factors and Value creation. | ||
Conclusion/recommendation | 10 | |
Conclusions should be arrived at based on analysis of issues; i.e. what do the results of your analysis tell you? In your conclusions section you should summarise the results of your analysis. Your recommendations will be assessed on the extent to which they are linked to the analysis of the firm issues and on the extent to which they are theoretically coherent – i.e. the extent to which they are consistent with the theoretical/conceptual base you establish | ||
10 marks | ||
Generic: Communication Skills (Written) | 20 | |
20 marks | ||
physical presentation and layout of your report, b) adopting logical well supported (i.e. using appropriate citations) arguments, c) the extent to which the report is accurate, brief, concise and clear, d) the standard of English, and, e) compliance with standard Harvard referencing. Equal account will be taken of each element.(5marks each element) | ||
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