3BMO70 Strategic Corporate Finance Assessment

January 21, 2021

ASSESSMENT TEMPLATE

Module Code

3BM070

Module Title

Strategic Corporate Finance

Level

Module Tutor

Doug Meikle

Credit Value of Module

Feedback Process

Delete or edit as appropriate

Overall feedback provided in Grademark using Turnit-in

Type of Submission

Delete or edit as appropriate

Online via Turnitin

Expected Feedback Date

This will normally be 15 working days from the date of submission (excludes weekends and University closure dates)

Friday 31^st March 2017

Assessment Task

Assignment 1

Weighting

50%

Word Count

Length of Presentation

Length of Exam

Delete as appropriate

Relevant excel files plus 2,000 words for all written parts

Due Date

· Your student number must appear on all pages.

· Pages must be numbered.

· Work should be submitted to Moodle

· You are required to add the following declaration on page 2 of their assignment: “I ………… [name] declare that I am the sole author of this assignment and the work is a result of my own investigations, except where otherwise stated. All references have been duly cited”.

· Your attention is drawn to the University policy on cheating and plagiarism. Penalties will be applied where a student is found guilty of academic misconduct, including termination of programme.

· You are required to keep to the word limit set for an assessment and to note that you may be subject to penalty if you exceed that limit. You are required to provide an accurate word count on the cover sheet for each piece of work you submit.

· For late or non-submission of work by the published deadline or an approved extended deadline, a mark of 0NS will be recorded. Where a re-assessment opportunity exists, a student will normally be permitted only one attempt to be re-assessed for a capped mark..

· An extension to the published deadline of up to one week for the submission of a piece of assessed work may be granted to an individual student if they meet the eligibility criteria of the Business School extensions policy (S:\Business School\Secure\Faculty Meetings\Extensions & Mitigating Circumstances).

· The assignment should be word processed.

· The York St John Harvard Referencing system should be used.

Examinations are subject to the University Examination Procedures.

Module Specific Requirements

This assignment requires you to submit two files to two separate drop boxes.

· An MS Excel file

· A word document

Learning Outcomes

1. For the 3BMO70 Strategic Corporate Finance Assessment, evaluate capital investment projects using a range of techniques including the assessment of risk

Assignment Description

Introduction

You work at the headquarters of Yorkshire Solar Farms plc. and are responsible for the evaluation of capital investment projects. The business is currently trying to decide between two solar power plants that will be based in Yorkshire.

Each farm has an expected life of 20 years but one is much larger than the other.

At the end of the project, the plants can be dismantled and sold with no lasting impact on the environment.

The estimated capital costs for this project are below:

Costs and timings	Small	Large
Investment costs	£’000	£’000
Preparatory costs (planning, legal etc.)	800	5,500
Land Purchase Cost (year 0)	9,000	28,000
Total Interest expense	1,200	2,500
Equipment (year 1)	16,000	48,000
Initial cost	27,000	84,000
Refurbishment of Equipment (year 5)	3,000	6,000
Total cost	30,000	90,000
less Resale value (yr20)	2,000	8,000
Net cost for depreciation	28,000	82,000
Less government grant	3,000	12,000
Net capital cost	25,000	70,000

Revenue

Revenue will come from selling the electricity. The price earned per KWH has been set at 6.38p per KWH.

The output has been estimated as below:

	Small	Large
	KWH ‘000	KWH’000
Year 1	50,000	120,000
Years 2-20	60,000	160,000

Small Solar farm projected profit and loss accounts
Year	1	2	3	4	5	6-19	20	Total
	£’000	£’000	£’000	£’000	£’000	£’000	£’000	£’000
Sales revenue	3,190	3,828	3,828	3,828	3,828	3,828	3,828	75,922
Government grant	150	150	150	150	150	150	150	3,000
Total revenue	3,340	3,978	3,978	3,978	3,978	3,978	3,978	78,922
Annual operating costs
Insurance	185	185	185	185	185	185	185	3,700
Business Rates	95	95	95	95	95	95	95	1,900
Wages	190	190	190	190	190	190	190	3,800
Annual management fee	175	175	175	175	175	175	175	3,500
Other operating costs	100	100	100	100	100	100	100	2,000
Interest expense	60	60	60	60	60	60	60	1,200
Depreciation	1,250	1,250	1,250	1,250	1,250	1,450	1,450	28,000
	2,055	2,055	2,055	2,055	2,055	2,255	2,255	44,100

Profit/(loss)	1,285	1,923	1,923	1,923	1,923	1,723	1,723	34,822

Large Solar farm projected profit and loss accounts
Year	1	2	3	4	5	6-19	20	Total
	£’000	£’000	£’000	£’000	£’000	£’000	£’000	£’000
Sales revenue	7,656	10,208	10,208	10,208	10,208	10,208	10,208	201,608
Government grant	600	600	600	600	600	600	600	12,000
Total revenue	8,256	10,808	10,808	10,808	10,808	10,808	10,808	213,608
Annual operating costs
Insurance	600	600	600	600	600	600	600	12,000
Business Rates	270	270	270	270	270	270	270	5,400
Wages	625	625	625	625	625	625	625	12,500
Annual management fee	585	585	585	585	585	585	585	11,700
Other operating costs	250	250	250	250	250	250	250	5,000
Interest Expense	125	125	125	125	125	125	125	2,500
Depreciation	3,800	3,800	3,800	3,800	3,800	4,200	4,200	82,000
	6,255	6,255	6,255	6,255	6,255	6,655	6,655	131,100

Profit/(loss)	2,001	4,553	4,553	4,553	4,553	4,153	4,153	82,508

3BMO70 Strategic Corporate Finance Assessment

Further information

The following information is also available

a) Depreciation is based on the capital cost.

b) Depreciation on original equipment is calculated on a straight line basis over 20 years.

c) Depreciation on the refurbishment is calculated on a straight line basis over 15 years (years 6-20).

d) The investment will be financed using a mixture of loans and retained profits. The average cost of capital for this is expected to be 8%.

e) Payments and receipts arise at the year ends unless otherwise stated.

f) The project is expected to have a life of 20 years.

g) All costs and revenues are expressed at today’s prices (year zero) with no allowance for inflation.

h) The government grant will be received in year 0. However it has been spread over the life of the project in the profit and loss accounts.

i) The preparatory costs have already been incurred.

j) The annual management fees for both projects include a fee of £25,000 which is an apportionment of head office overheads.

k) The refurbishments in year 5 require the use of specialised equipment that will be borrowed from another division of the Company. This will cost the other division additional hire costs of £100,000 per project and is not reflected in the profit and loss accounts.

l) An initial cash reserve is needed for each project. It will be paid back at the end of year 20.

a. Small £120,000

b. Large £500,000

m) Ignore corporation tax.

n) The company currently has a return on capital employed of 15% and this is the company target for new projects.

o) The company expect projects to have a payback period of no more than 10 years.

Required:

Task 1 Calculations (using the spreadsheet)

· You must use and submit this spreadsheet.

· Enter relevant figures into the cash flows worksheet and justify any adjustments to the profit and loss accounts as a result of the information in points a)-j) above.

· Using the figures in the calculations worksheet for Net present value (NPV), Internal Rate of Return (IRR), accounting rate of return (ARR) and Payback Period, state, with reasons which project you would accept.

· Use the sensitivity worksheet to prepare a sensitivity analysis for each project by adjusting each variable +/- 10%.

(30 marks)

Task 2 Risk

You are not expected to do any calculations for this task.

· Evaluate these projects using your sensitivity analysis. (500 words)

Hint: What can sensitivity analysis do? How many sensitive variables in each project? Why? What do these variables mean? What can be concluded from sensitivity analysis for these two projects? Which project could be accept? Why? Key word: risk.

· Discuss how using expected values could help analyze the projects. (500 words)

Hint: Definition of expected value. How can calculate expected value?

What does expected value mean? How can we evaluate projects if they have same expected value? Key words: risk, probability analysis, standard deviation.

· How could Yorkshire Solar Farms plc. could take account of inflation in their analysis of the two plants? (500 words)

Key words: “money cash flows” and “real cash flows”

Credit will be given in this task for appropriate use of academic literature along with accurate citations and referencing using the Harvard system.

(70 marks)

Additional Information for 3BMO70 Strategic Corporate Finance Assessment

Methods of working

You are expected to the use the assignment 1 spreadsheet for your calculations. This should be uploaded to Moodle along with your written work.

Use a minus sign (-) to indicate cash outflows

Assignment 1 spreadsheet

There are 4 worksheets in this workbook to help you with your assignment (cash flows, calculations, sensitivity worksheet and sensitivity answers).

Cash flows worksheet:

Enter all cash flows into this worksheet.

Calculations worksheet: Enter the discount rate and data for the Accounting Rate of Return into the lighter shaded cells

Sensitivity worksheet: Use this worksheet to adjust the different variables by +/- 10% to see the effect on NPV and IRR. See seminar examples of how to work with this tab.

Sensitivity answers

Enter your answers to the sensitivity analysis in the lighter shaded cells.

Assessment Criteria

See Next page

Generic 3BMO70 Strategic Corporate Finance Assessment Descriptors (UG)
Assessed Components	A*	A	B	C	D	F (fail)	F (fail)	0	NS
Assessed Components	(100-85)	(84 – 70)	(69 – 60)	(59 – 50)	(49 – 40)	(39 – 20)	(19 – 1)	F (0)	0NS
Knowledge & Understanding	Work submitted is considered to be outstanding in the assessed components	Excellent understanding of a wide range of ideas	Very good understanding of a range of ideas	Good understanding of relevant ideas	Fair understanding of a few relevant ideas	Subject knowledge is poorly demonstrated	Non-Serious Attempt Work submitted is not considered to be a serious attempt to meet the assessed components	Work submitted is judged to be of no value (in relation to the assessed components)	Non Submission
Analysis & Evaluation		Excellent ability to analyse, evaluate, compare and construct values	Accurate analysis and very good evaluation	Good analysis and sound evaluation	Fair analysis with some evaluation	Weak analysis and evaluation
Critical Thinking		Excellent thinking, logical and creative with insightful outcomes	Very good synthesis of ideas that are articulated clearly	Good synthesis of ideas with mostly consistent logic	Logical with some synthesis of ideas	Inconsistent logic and synthesis
Research & Enquiry		Rigorous and sustained enquiry with excellent outcomes	Accurate and consistent enquiry using appropriate methods	Consistent approach drawing on a range of sources	Relevant methods of enquiry with some inconsistencies	Little evidence of research or understanding of appropriate approaches
Creativity		Outstanding original or innovative work	Shows imagination and originality	Good imagination with some originality	Some originality. Work is mostly derivative	Derivative work that offers little in the way of new ideas
Presentation & Referencing		Technically excellent, accurate referencing and presentation	Accurate and consistent referencing and presentation	Good referencing and consistent approach to conventions	Fair understanding of conventions	Poor referencing and little understanding of conventions
Communication		Excellent ability to communicate ideas clearly and appropriately	Very good ability to communicate ideas clearly	Most Ideas communicated effectively	Ideas are communicated with some success	Ideas are not communicated effectively
Practical skills		Excellent demonstration of skills	Very good demonstration of skills	Good demonstration of skills	Fair demonstration of skills	Skills not relevant or require significant development
Independent work & team work		Excellent ability to work effectively within a team environment. Excellent management of own time and skills	Very good ability to work effectively within the team environment. Very good at managing own time and skills	Good team work and management of own time and skills	Mostly effective approach to team work. Own time management is satisfactory	Contribution to team work may be very limited. Inability to organize own time and skills effectively
Professional values		Excellent understanding of values and approach to professionalism	Very good and consistent approach to professional values	Good approach to professional values	Mostly professional work	Appropriate values are not demonstrated consistently

3BMO70 Strategic Corporate Finance Assessment

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