TASK ONE (70 marks)
The Senior management at Aisha Plc have identified that there is a strategic need for a project in Manchester or in London. The Manchester project is expected to have a scrap value of £10,000 and the London project is expected to have a scrap value of £40,000. The Senior management of Aisha Plc have to make a choice between the two projects. They are unsure as to which of the two models they should invest in. The company’s cost of capital is 9%.
They have given you the following cashflows of the two projects.
| Cash outflows £ | |
| Manchester | 150,000 |
| London | 180,000 |
| Cash inflows £ | ||
| Year | Manchester | London |
| 1 | 10,000 | 95,000 |
| 2 | 50,000 | 25,000 |
| 3 | 50,000 | 20,000 |
| 4 | 80,000 | 50,000 |
QUESTION 1(a) :
They want you to appraise the two prospective projects using the following investment appraisal techniques: [46 MARKS]
- Payback (8marks)
- Accounting rate of Return (10 marks)
- Net Present Value (12 marks)
- Internal Rate of Return (16 marks)
Note: Funds are only available for only one model.
QUESTION 1(b) :
Write a report (of around 500 words) to the senior management of the company explaining how each of the techniques works. Your report should include at least two advantages and two disadvantages of each technique. [16 MARKS]
QUESTION 1(c) :
Explain briefly (in around 200 words) which project you would recommend to senior management of Aisha Plc under each technique and state your reason why you would recommend that machine.
[8 MARKS]
PLEASE NOTE ALL WORKINGS SHOULD BE SHOWN CLEARLY WITHIN YOUR REPORT.
TASK TWO (26 marks)
An analysis and evaluation of the performance, liquidity, and financial structure of Tesco plc over the three-year period 2017 – 2019.
QUESTION 2(a):
Explain the company’s (Tesco plc) performance and position using the accounting ratios shown below (see page 5) and any other information relevant to Tesco plc taken from the annual report and accounts for 2019 (see the link in page 6) and any other relevant source of evidence. [18 MARKS]
QUESTION 2(b):
Highlight any Five (5) limitations in the use of accounting ratios that you found in your analysis and evaluation of the company over the three-year period. This may include reference to the movements in the company’s share price particularly in 2019. [5 MARKS]
QUESTION 2(c):
Discuss other three (3) factors affecting Tesco in 2019 e.g. significant new factors affecting the company’s performance, movements in share price, current retail and market conditions.
[3 MARKS]
A maximum of 4 MARKS will be awarded for a high-quality analysis, presentation and references.
Note: Harvard referencing format must be used
Information on TESCO Plc
| 2019 2018 2017 |
| Performance ratios |
| Gross profit margin (% ) 6.38 5.83 5.19 |
| Return on total assets ( % ) 3.41 1.89 0.32 |
| Return on capital employed ( % ) 5.90 5.07 0.55 |
| Liquidity ratios |
| Current ratio ( : 1 ) 0.61 0.71 0.79 |
| Liquidity ratio ( : 1 ) 0.49 0.61 0.68 |
| Efficiency ratios |
| Inventory days (days) 14.95 14.37 15.02 |
| Trade receivable (days) 3.42 2.86 3.20 |
| Trade payable (days) 32.84 33.39 32.08 |
| Gearing ratio |
| Gearing ( % ) 161.26 233.35 354.44 |
Source: FAME Financial Database
SOURCES AND HYPERLINKS
Tesco plc Annual Report and Accounts 2019
https://www.tescoplc.com/media/476422/tesco_ara2019_full_report_web.pdf
Understanding Tesco plc
https://www.tescoplc.com/investors/understanding-tesco/
FAME financial database
http://student.londonmet.ac.uk/library/subject-guides-and-research-support/a-z-subject-guides-and-librarians/guildhall-school-of-business-and-law-/accounting-banking-economics–finance/key-subject-collection-databases/
BBC website: 2 March 2018 SFO seeks retrial of former Tesco bosses
http://www.bbc.co.uk/news/business-43253799
ASSESSMENT CRITERIA:
Task 1:
Total Marks for Task 1 = 70
Task 2 :
Total Marks for Task 2 = 26
18 MARKS for analysis and interpretation of accounting ratios for performance, liquidity and financial structure with some attempt to link this to business factors affecting Tesco over the three-year period
5 MARKS for brief comments highlighting any five (5) limitations in the use of accounting ratios for Tesco
3 MARKS for the discussion of other three (3) factors affecting Tesco in 2019 e.g. significant new items affecting the company’s performance, movements in share price, current retail and market conditions
A maximum of 4 MARKS will be awarded for a high-quality analysis and presentation
Overall Marks (Task 1 & Task 2 and Presentation) = 100
Harvard referencing format must be used
Grading Criteria:
| Marks | Grade |
| 70-100 | A |
| 60-69 | B |
| 50-59 | C |
| 40-49 | D |
| 30-39 | F1 (Condoned Pass) |
| 0-29 | Fail |
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