You have been engaged as a management consultant by Scylace plc, a grocery retail chain. You have been asked to evaluate two alternative proposals for building a new superstore and a proposal to make a takeover bid for Helibeb plc.
You have the option to build the superstore at one of two locations. Using the figures which you have calculated in your examination (included below), write a report with recommendations on whether to build either or both of the two superstores and on whether to make a bid for Helibeb plc.
If you recommend that (a) both superstores should be built or (b) at least one superstore should be built while Scylace also seeks to acquire Helibeb, you must provide a recommendation on which investments should take priority if resources are insufficient to make all the investments you are recommending.
Your report must contain:
1. An executive summary (up to 300 words)
2. An introduction (up to 200 words)
3. A methodology for evaluating the proposed new superstore locations and prospective acquisition, in the light of available finance (up to 500 words)
4. An evaluation of the proposed new superstore locations and prospective acquisition (up to 1,000 words)
5. Conclusions (up to 250 words)
6. Recommendations (up to 250 words)
7. References (A minimum of 20 references using APA Referencing Style (articles from academic periodicals, ft.com, hbr.com, mckinsey.com, official data and information sources)
Further information: Scylace plc has total assets of £312 million, including £14 million in cash, with total liabilities of £98 million.
Figures which have been calculated in the examination in addition to provided data below
The cost of building the new superstore and the annual sales revenue and costs are as follows:
|Option A Location A £ million||Option B Location B £ million|
|Cost of New Superstore||40.0||25.0|
|Annual Sales Revenue||13.0||10.0|
|Annual Cost of Sales||(9.1)||(7.0)|
|Annual Staff Costs||(1.2)||(1.1)|
|Other Annual Costs||(1.1)||(0.8)|
Depreciation is to be charged on a straightline basis over a period of 50 years, taking account of the residual value.
|Option A||Option B|
|Accounting Rate of Return||4||4.71|
You have been engaged as a management consultant by Scylace plc, a grocery retail chain. You have been asked to evaluate three alternative proposals financing expansion. The options are:
to issue a bond redeemable in 20 years
to issue a bond redeemable in 50 years
or to issue new shares.
The details of the proposed alternative bonds and their expected market values are as follows:
|20-year bond||50-year bond|
|Face Value of each bond||£100||£100|
|Nominal Interest Rate||8.0%||6.5%|
|Predicted market price of bond||£150||£120|
Scylace plc has ordinary shares with a nominal value of £1 each listed on the London Stock Exchange.
The market price of 1 Scylace ordinary shares is 570p
Over the last year, Scylace has paid a dividend of 24.00p per share.
The directors are expecting the company to pay dividends of 24.75 per share over the next year and expect dividends to grow at a constant percentage rate for the foreseeable future.
|predicted yield to redemption||3.33||5.05|
The directors of Scylace plc have also expressed an interest in in making a takeover bid for a clothing retailer, Helibeb plc. The following figures have been extracted from Helibeb’s financial statements for the last two years:
|Year Ended September 30th.|
|2017 £m||2018 £m|
|Cost of Sales||(492)||(500)|
|Net Profit Before Tax||19||22|
|Net Profit After Tax||16||18|
|As at September 30th.|
|Helibeb plc for 2017||Helibeb plc for 2018|
|Return on Shareholders’ Equity||14.81||15.19|
|Turnover of Capital Employed||1.8||1.77|
|Net Profit Margin||2.35||2.58|
|Book Gearing for Helibeb||44.32||41.45||38|