Title [FINANCIAL ANALYSIS] Assessment 2 by Thong Nguyen Lu.pdf ✅

2025 SEMESTER 1 MODULE TITLE Financial Analysis (FINA) TITLE OF ASSESSMENT Assessment 2 (First Sit): Coursework LEVEL: H7 NAME OF STUDENT: Thong Nguyen Lu STUDENT ID: 24LBM23117 TUTOR: Mr. Giao Nguyen Xuan & Ms. Tram Huynh Thi Bao SUBMISSION DATE: 29th April, 2025 WORD COUNT: 4,385 Words (excluding words in the table) MARKS: 60% SUBMISSION LOCATION: Online (via Mybeckett)
Table of Contents Abstract.....................................................................................................................................................................1 Chapter I - Financial analysis related to Investment Strategy:.............................................1 1. What will be the cost for each source of financing? Consider the DDM (i.e., Dividend Discount Model) and CAPM (i.e., Capital Asset Pricing Model) methods for common equity. Please provide your comments on each approach's assumptions, merits, and limitations.................................................................................................... 1 2. Determine the optimum cost of capital using the Weighted Average Cost of Capital (WACC) approach for the target capital structure. (Hints: Ms Kathryn would prefer to use CAPM over DDM)................................... 4 3. Evaluate this possible restructuring decision’s total value addition (i.e., total NPV) and breakeven rate (i.e., IRR). (Hints: Use the WACC as your discount rate to evaluate the investment projects).............................. 5 4. Assume that the product lifecycle of five years is considered a safe bet, but the scale of demand for the product is highly uncertain, mainly due to possible COVID-19 and Energy Crisis. Analyse the sensitivity of the projected NPV to the unit sales and the cost of capital.................................................................................................7 5. Explain how Artificial Intelligence (AI) could help manage financial resources, particularly capital investment decisions.............................................................................................................................................................................8 Chapter II - Financial Analysis for Internal Management:.......................................................9 1. The team wants to know about the limiting factor and requested that you help calculate the maximum profit achieved in the period..............................................................................................................................................................9 2.a How many members will the club need to have to break even?...............................................................................10 2.b Calculate the margin of safety percentage if Nexus attracts 200 or 300 members........................................ 11 2.c If Nexus wishes to profit £5,000, how many members should it target?.............................................................. 11 2.d The managers decide that a £360 fee is too high. What would happen if they reduced the membership fee to £300? Adjust and recalculate the contribution, breakeven point, and margin of safety percentages at output levels stated in b) and advise management of the feasibility of a price reduction............................. 11 2.e Explain the limitations of Cost Volume Profit (CVP) analysis......................................................................................13 3. Budget planning is an essential organisational process with many advantages. However, there can be negative aspects to the budgeting process. The management accounting team of Rice Plc wants you to discuss and provide examples of these budgeting aspects.............................................................................................. 14 Conclusion.............................................................................................................................................................15 Reference List......................................................................................................................................................16
Abstract This report provides a comprehensive financial analysis to support strategic decision making at Rice Plc, a UK based conglomerate. The analysis is divided into two key chapters: Financial Analysis for Investment Strategy and Financial Analysis for Internal Management. In the first chapter, the report evaluates a proposed restructuring plan focused on expanding the company's electronic vehicle brand, ‘eMi Meta,’ by closing five underperforming brands. Various financing options: equity, bonds, and preference shares. They are analyzed using the Dividend Discount Model (DDM) and Capital Asset Pricing Model (CAPM), leading to an estimation of the Weighted Average Cost of Capital (WACC). Key financial metrics, including Net Present Value (NPV), Internal Rate of Return (IRR), and sensitivity analyses, are conducted to assess the £300 million expansion project’s viability. Additionally, the report explores the role of Artificial Intelligence (AI) in capital investment decisions. The second chapter relates to other chains of Rice Plc that needs to address internal management issues, including production constraints at Meta Toy Ltd through limiting factor analysis and pricing strategy optimization for Nexus Sports Club. The report will critically discuss the limitations of Cost Volume Profit (CVP) analysis and budgeting practices. Page | 1
Chapter I - Financial analysis related to Investment Strategy 1. What will be the cost for each source of financing? Consider the DDM (i.e., Dividend Discount Model) and CAPM (i.e., Capital Asset Pricing Model) methods for common equity. Please provide your comments on each approach's assumptions, merits, and limitations. Cost of Preferred Equity: Based on the given information, the annual dividend is £8 and the market price is £102. The cost of preference shares is calculated as: The cost of preference shares = (Annual Dividend / Market Price) * 100 = 8 / 102 * 100 = 7.84% Therefore, the cost of preference shares is 7.84%. Cost of Debt: Based on the data collected from Ms. Kathryn, the information related to the company's debt is summarized in the table below: Coupon (C) 11% * 100 = 11 Market price (MV) £98 Face value (FV) £100 Years to maturity 5 Tax Rate 25% The yield to maturity (YTM) of the bonds is calculated as follows: rD(before tax) = YTM = (C + ((FV - MV)/5)) / ((FV+MV)/2) rD (before tax) = YTM = (11+(100-98)/5)/((98+100)/2) = 11.52% rD(after tax) = rD * (1 - tax rate) = 11.12% * (1 - 25%) = 8.64% Thus, the cost of debt is 8.64%. Page | 2