Finance for International Business | My Assignment Tutor

1Ref/Def Assessment Brief 7BSP1 245 Finance for International Business Module Title:Finance for International BusinessModule Code:7BSP1 245Assignment Format & MaximumWord countINDIVIDUAL Report, maximum2,000 wordsAssignment Weighting:70%Coursework Submission:Time:23.30Date:1 8th June 2021Method: CanvasCoursework returnDate returned tostudents:1 9th JulyModule leaderArthur DyirakumundaFirst markerArthurDyirakumundaDr NurgulChambers,Dr Edna StanMadukaInternal ModeratorApproved ☐Date: January 2021Module Board namePG Board BExternal ExaminerApproved ☐Date:Module Board date Assessment CriteriaLearning 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 theserisks;4. research the specific issues relating investing and raising finance on an international basisLearning 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 ofcomponent and overall capital costs;7. devise strategies for identifying and managing foreign exchange risk and the risks of internationalinvestment;8. devise financial strategies f or enhancing enterprise value.Feedback /Marking criteria for this AssignmentPerformance will be assessed using HBS Grading Criteria and Mark scheme.Guidance for improvement will be given in writing on the Assessment Feedback Form or on the StudyNet FeedbackForm within 4 weeks of submission.For each day or part day up to five days after the published deadline, coursework relating to modules submitted latewill have the numeric grade reduced by 1 0 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 thenumeric grade awarded for the assessment is less than 50 for level 7, no lateness penalty will be applied; Detailed Brief for Individual/ Assessment2Assignment Title: Investment Appraisal ReportDescription of the assignment:Report testing an evaluation of international business finance decisions7BSP1 245 Finance for International BusinessCoursework Brief3Wholesome Organic Foods plc. (t0 = 2021 )Wholesome Organic Foods was founded in 1 980 when the founding family acquiredan organic farm in Kent. Demand for their wholesome organic food mushroomedand the business expanded rapidly in the 1 980’s but remained a family business. Itwas restructured as a limited company in 1 990 and subsequently experienced rapidgrowth until 2001 .In that year the then directors decided that the business had reached the limit ofdevelopment in its present form. Future development required large-scale expansionin order to compete with the cost base of non-organic food producers, which in turnneeded an injection of capital that the Founding family were unable to generatethemselves The conviction that there was much money to be made from “qualityorganic foods” had been vindicated but the directors felt that it would be safer tolook for other avenues for future development.They investigated several possibilities deciding eventually to expand productionfacilities and establish their own packing/distribution system so that their newly‘branded’ produce could be sold by independent quality food retailers. Upon raisingthe necessary capital in the name of Wholesome Organic Foods plc, they embarkedupon a to date, successful venture.As the market grew and to keep abreast of new production technology, the directorsagreed to further update the plant and machinery. They financed updating ofequipment and premises by means of issuing debentures.It is now April 2021 and the present directors of Wholesome Organic Foods plcbelieve that the long-term success of the company lies in future diversification andexpansion.The newly appointed finance director, agrees with this opinion but insists that thecompany must first appraise its own current position and if necessary, makechanges to strengthen its existing financial situation before embarking on new plans.He is particularly concerned that the company should preserve adequate liquidityand finance its assets in a beneficial manner. Members of the founding family stillretain 30% of Wholesome Organic Foods equity and other long-standing directorsown a further 25%; a change of control is unlikely to be welcome.During the last year, the company has updated production and distribution assetsand, in what has been a difficult year, has been able to maintain sales and profitgrowth (see Wholesome Organic Foods plc accounts in Appendix 1 ). There has beena great deal of uncertainty about world economic growth and stock markets havebeen extremely volatile resulting in the firm’s ordinary shares trading below theirlevel of one year ago although the preference shares have made some progress,4increasing by 1 5p during the year.Ordinary share dividends have achieved an average growth rate of 5% per annumover the past five years and this rate is expected to be maintained in the future.The present market prices for Wholesome Organic Foods plc shares and debenturesare: £1 Ordinary shares£2, 5% Preference shares7% Debentures 2025£1 .85 ex div£2.55 ex div£1 08.65 ex interest Any new venture would be expected to achieve a return on capital employed in linewith that experienced recently by Wholesome Organic Foods. The finance directorfavours a payback period of 5 years. Wholesome Organic Foods would thereforeneed to agree a realistic acquisition price for such a new venture and its future cashflows in order to determine whether these criteria could be met.Although several investment projects are being considered the main proposalcurrently being investigated offers an expansion of the “produce” component of theUK firm’s activities, but with an additional element providing further diversificationinto the Spanish organic food retail market. Wholesome Organic Foods financedirector has already calculated the trends in the financial ratios of the Bonita FoodsSL, an unquoted Spanish company, from its unaudited annual accounts (seeAppendix 2) and has concluded that the proposal is now worthy of furtherinvestigation.Bonita Foods SL is a thriving family-owned venture requiring further capital toexpand its network of organic food shops in Spain. The existing owners feel that thefirm’s future lies in establishing wider European links and the retirement of seniorfamily members, leaving the younger members active in the management of the firm.They are therefore considering selling all the shares to a suitable company at the endof 2021 . The firm has been established for 45 years and is well respected inbusiness circles. The average age of its fixed tangible assets is 3 years anddepreciation is charged at 1 0% on cost each year.The firm’s nominal share capital is €550,000 and the directors have indicated thatthey would require a premium of 1 00%. As the firm is at present family owned andrun, there is no available price/earnings ratio. P/E ratios for the only two publiclyowned companies in the same business sector, Senza Foods SL and Garcia OrganicSL, are 1 2 and 8 times respectively. Garcia Organic SL had grown at a similar rate toBonita Foods SL.The acquisition of Bonita Foods SL retail outlets currently being investigated offersan expansion of the firm’s activities into exporting, but with an additional element5providing further diversification for the company. Wholesome Organic Foods financedirector has already calculated the trends in the Spanish retail sector and hasconcluded that the proposal is now worthy of further investigation. However, as thisis Wholesome Organic Foods first venture into overseas markets, the directors areconcerned about foreign exchange exposure. Wholesome Organic Foods isinterested not only in extending the range of its produce but particularly in thepossibility of diversifying into the retail trade. While aware of the existence of manycompetitors, the directors feel that there is a ready market in Spain for theirestablished name and product.The finance director has provided an expected profit forecast (under normal weatherconditions-Base Case 1 probability 55%) for the first five years of the Bonita FoodsSL project. The projected figures are, like the UK Company’s, subject to alteration ifweather conditions vary. Sales are expected to be €900k in 2022 and grow at 1 5%per annum to 2026. Total variable costs (of which 40% is labour cost) are expectedto be €495k in 2022. Labour costs will increase by 9% per annum and other variablecosts by 6% per annum. There will also be fixed costs of €1 80k in 2022 which willincrease by 5% per annum.Under best case scenario probability 30% net cash flows will be 1 .1 5 times basecase.Under worst case scenario probability 1 5% net cash flows will be 0.70 times basecaseThe beta of Wholesome Organic Foods plc is believed to be 1 .7, the rate of return on5yr UK government bonds is 0.25% and the FTSE all-share index return for the lastyear is 5.25%. The corporation tax rate in Spain is 25% and UK corporation tax iscurrently 21 %. Both are payable at the end of the accounting year in question (youmay assume for the purpose of this case that accounting profit and taxable profitare identical.)There would be no restriction on the transfer of Profits/cash flows to the UK. It isconsidered possible that, as the Spanish economy develops further, even higherwages than those forecasts may be demanded by the workforce.6Required:Evaluate the Bonita Foods SL investment project on behalf of Wholesome OrganicFoods plc. Advise the firm on whether it should undertake the project and identify themaximum price Wholesome foods Plc should pay to acquire the Bonita Foods SL.Also, advise the firm on the potential impact of foreign exchange on the project andevaluate the alternatives for financing the purchase.Submission requirements:Your answer should be presented in the form of a report of 2,000 words total(excluding the reference list). You must also submit a working Excel spreadsheetcontaining your calculations.You should use Arial font size 1 2 and 1 .5 line spacing. Exceeding the word count by1 0% or more or deviations from the formatting instructions will attract a penalty ofup to 5%. Not submitting a working Excel spreadsheet will attract a penalty of 1 0%The hand-in deadline for submission is 23.30 on 1 8th June 2021 .Submissions up to 24 hours late will attract a 1 0% penalty for each day up to 5 dayslate will be capped at 50%. Reports submitted more than one week late will attract amark of zero. Referred work submitted late will attract a mark of zero.Submit one electronic copy via Study net as a Word/PDF file.This is an individual assignment and the report submitted should be entirely yourown work.This assessment is subject to anonymous marking so do not put your name on anydocument you submit. However, you must put your SRN on each document yousubmit. The report will be checked for plagiarism using Turnitin and you shouldcheck using the checker on the module site prior to submitting.7Appendix 18All amounts are in thousands of pounds sterling 2020201 9Sales78446780Opening Stock208200Production Cost54604760Closing Stock-21 6-208Cost of Sales54514752Gross Profit23932028Administration Expenses631 .7562 Selling Expenses7787221 41 01 284 Operating Profit 983 744Debenture Interest 60 60Profit Before Tax 923 684Corporation Tax 277 21 2Profit After Tax 646 472Ordinary Dividend 1 75 1 62Preference Dividend 20 201 95 1 82Retained earnings 451 290Fixed Assets (net):Land & Buildings 1 078 994Agricultural Machinery 51 6 400Processing Plant 620 580Vehicles 1 95 1 35Office equipment 1 60 1 392569 2248Current Assets:Stocks 21 6 208Debtors 1 1 76 839Short-term Investments 255 255Bank/Cash 1 40 1 361 787 1 438Current Liabilities:Trade Creditors 61 1 470Corporation Tax 277 21 2Final Dividend 1 75 1 621 063 844724 5943293 2842Long-term Liabilities:7% Debentures 2025 500 5002793 2342Shares & reserves£1 ordinary shares 1 200 1 200£2, 5% Preference shares 200 200Profit & loss 1 393 9422793 2342Abridged Trading, Profit & Loss Account for the year ended30th June 2020Balance Sheet at 30th June 2020:Wholesome Organic Foods plc9Appendix 2Guidance for the preparation of your report.NB:Bonita Foods SL financial year end is 30th SeptemberAll amounts are in Euros1 Pound Sterling = 1 .1 6EuroDraft Balance Sheet at 30th September 2020:Fixed Assets (net):EuroFreehold Shops 600,000Fixtures & Fittings 1 60,000Delivery vehicles 70,000Office equipment 20,000850,000Goodwill 50,000Saleable patents 72,0001 22,000Current Assets:Stocks 44,000Debtors 25,200Bank/cash 30,8001 00,000Current Liabilities:Trade creditors 22,400Short-term loan 34,000-56,40043,6001 ,01 5,600Long-term Liabilities:20% bank loan 1 60,000855,600Shares & reserves€1 shares 550,000Profit & loss account 305,600855,600Bonita Foods SL net profit after tax:Euro201 6 82,000201 7 1 01 ,200201 8 1 03,800201 9 1 08,0002020 1 1 4,650The profit for the year201 9/20is an estimatebased on the first sixmonths.1 0The purpose of this assignment is simply to give you the opportunity to demonstratethat you have acquired the knowledge and skills identified in the Module Guide andthat you can apply them in a typical business situation.You should approach the task as a business manager dealing with a ‘real’ businessand should:a) Adopt a coherent approach to dealing with the set task with a clearlystated business purpose.b) Identify an appropriate theoretical dimension and consider theimplications for practice.c) Adopt appropriate analytical methods and a critical perspective.d) Refer to empirical work where appropriate.Guidance for the preparation of your report cont’d.Do refer to the assessment criteria given in the Module Guide which gives a generaloutline of how marks will be awarded. Further specific advice about how marks willbe awarded for the coursework is given below.Task Specific Assessment Criteria: CourseworkCommunication Skills (Written) – 20 Marks:Marks will be awarded for a) for the physical presentation and layout of your report, b)adopting logical well supported (i.e. using appropriate citations) arguments, c) theextent to which the report is accurate, brief, concise and clear, d) the standard ofEnglish, and, e) compliance with standard Harvard referencing. Equal account will betaken of each element.Knowledge & Understanding – 20 Marks:You should establish a clear business focussed conceptual basis for your report –i.e. you need to show what you are seeking to achieve and why it is important formanaging the Fenland Foods plc business (supported using appropriate citations).Synthesis – 20 Marks:From the case data given you should identify the nature of the decision(s) facingWholesome Organic Foods plc and identify appropriate theory to support theapproach you adopt and give your reasoning. i.e. which analytical tools areconsistent with ‘business focussed conceptual basis’ referred to above? (supportedusing appropriate citations).1 1Analysis – 20 Marks:Using the case data given, you should apply the analytical methods identified in theprevious section and evaluate the impact on the business in relation to the ‘businessfocussed conceptual basis’ referred to above.Evaluation – 20 Marks:Conclusions should be arrived at based on your analysis of Wholesome OrganicFoods plc issues; i.e. what do the results of your analysis tell you? In yourconclusions section you should summarise the results of your analysis. Yourrecommendations will be assessed on the extent to which they are linked to theanalysis of Wholesome Organic Foods plc issues and on the extent to which they aretheoretically coherent – i.e. the extent to which they are consistent with thetheoretical/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 hourswww.studynet.herts.ac.uk/go/CASE/ Academic English for Business support is available through daily drop-insfrom the CASE office. See the CASE workshop timetable on the CASE mainwebsite 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 InformationDatabases and the Information Management contact details.(http://www.studynet1 .herts.ac.uk/ptl/common/LIS.nsf/lis/4DAF5390094771C2802575ED00421 2BF)Tutors allow students to test their work using Turnitin. Guidance on submission toTurnitin 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+201 6+USER+GUIDE.pdf/$FILE/TURNITIN+FOR+STUDENTS+201 6+USER+GUIDE.pdf