SISFU/QSF-ACD-006

Rev 003 dtd 15 June 2015

SCHOOL OF BUSINESS AND COMPUTING

BTEC HND in Management, Marketing,
Human Resource Management, Accounting &
Computing and Systems Development
Front Sheet

UNIT 2 - Managing Financial Resources and Decisions

Student number/
Student name:

Group:

Activity Reference: 02-02

Date due: 23 March 2016

Assessor(s): Mark Anthony R. Casanova/

Rosalinda Caoile

Date submitted:

Outcome /
Skill

1. Understand
the sources of
finance
available to a
business

2. Understand
the
implications of
finance as a
resource within
a business
3. Be able to
make financial
decisions
based on
financial
information

Evidence

Assessors
decision

1.1 Identify the sources of

finance available to a
business

1.2 Assess the implications

of the different sources

1.3 Evaluate appropriate

sources of finance for a
business project

2.1 Analyse the costs of

different sources of finance

3.1 Analyse budgets and

make appropriate decisions

3.2 Explain the calculation

of unit costs and make
pricing decisions using
relevant information

Feedback

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3.3 Assess the viability of a

project using investment
appraisal techniques

Merit grades awarded

M1

M2

M3

Distinction grades awarded

D1

D2

D3

Assessors additional feedback and comments

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I confirm that this is all my own work (student to sign and date)

INTERNAL VERIFICATION (Internal Verifier to sign and date)

SCENARIO (FROMT FRONT SHEET 1)

Impressed with your work on your first assignment, Mr. Del Monte decided to give you additional tasks. You
were assigned to two clients, maintaining North Way Enterprise.
CLIENT 1
North Way Enterprise needs a financial plan that will help management make decisions on their new project, the
Red Box. North Way urgently needs the following:
st

A. A cash budget for the 1 Quarter of 2016 to determine availability of funds in acquiring a delivery truck
(for their Red Box Project) worth P1,000,000.
B. Fund sourcing options, their implications and costs (if funds are insufficient per cash budget).
In evaluating the appropriate sources of finance, maximizing Earnings Per Share is a major criterion.
C. Investment Appraisal to evaluate viability of the Red Box project.
For Task A, the following assumptions were made on their steel cabinet trading operations (refer to
company profile and financial statements on front sheet 1):

Selling Price: P20,000/steel cabinet

Target sales units: 65 units for January with a monthly increase of 3 units

All Sales are on credit. 50% is collected on the month of sale and the balance, the following month.

Cost of Sales Ratio is 60%

Purchases are paid the following month.

Ending merchandise inventory is maintained at 30% of the following months expected cost of sales.
Monthly Operating Expenses are estimated as follows::

Salaries and Employee Benefits

:P140,000

Sales Commission

:3% of sales

Advertising and Promotions

:P 20,000

Light and Water

:P 10,000 + 2% of sales

Transportation Expense

:P 30,000

Insurance

:P 25,000

Depreciation

:P 55,000

Rental

:P 40,000

Office Supplies

P 7,000

Other data provided:

Monthly Loan payment of P12,500
Acquisition of a new Delivery Truck for Red Box project in January 2016, P1,000,000.
The Company pays P50,000 dividends at the end of every quarter
The Company maintains a minimum cash balance of P500,000 per month. If cash balance at any month
falls below P500,000, financing is needed to maintain the required cash balance.
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For Tasks B and C, consider the following data provided to you::

Cost of debt is 16%
Tax rate is 30%.
Monthly market rental rate for the delivery truck is P80,000 per month.
The client disclosed that they have a used vehicle, still in good condition with a net book value of
P300,000.
The minimum required rate of return is 16%.
The present value of an annuity of P1 for 5 periods at 16% is 3.274.
The expected annual net cash flow of Red Box is P350,000. North Way sets recovery of its investment
within 3 years.
The client is also considering the acquisition of a Delivery Truck from a regular supplier. The
transportation equipment sells for P850,000. The truck will be for its project, the Blue Box.. It will be
depreciated on a straight line basis over a 5 year period with no salvage value. The equipment is
expected to generate net annual cash flow of P270,000. The present value of an annuity of P1 for a 5-yr
period at 16% is 3.274
North Way Enterprise projects a P2.9 million Earnings Before Interest and Tax (EBIT) in 2016..

CLIENT 2:
Macapagal Enterprise needs assistance in setting the selling price for its new product Empire, which will be
launched in the market. The following product cost estimates were provided to you.
Costs were based on an anticipated volume of 12,500 units, produced and sold for each period.
The company will use cost-plus pricing. Note that the companys desired rate of return is 25% on its
P1,500,000 investment.

Direct Materials
Direct Labor
Variable Manufacturing Overhead
Fixed Manufacturing Overhead
Variable Selling and Administrative Expenses
Fixed Selling and Administrative Expenses

Per Unit
P30
20
6

Total

P 125,000
4
P 70,000

Product Empire is a commodity that is currently selling at P80 per unit in the market. You need to set your price
based on market to be able to compete. Your new price should achieve your desired income oP375,000.

REQUIRED:
1. Identify at least five (5) sources of finance available to North Way Enterprise. (1.1)
2. Assess the implications of the above sources (1.2)
Advantages and disadvantages of the sources identified.
3. Evaluate at least 3 appropriate sources of finance for the Red Box project. (1.3)
Consider North Way options in your evaluation.:
- 100% Equity Financing through issuance of additional shares
- 100% Debt financing through loans from Development bank with 16% interest. Term is 3 years.
- Other Financing options.

Discuss the factors considered in the choice of funds.

To earn M1, justify which option is better by calculating Earnings Before Interest and Taxes (EBIT) that would
make both financing options to breakeven.
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4. Analyse the costs of different sources of finance (2.1)

5. Analyse budgets and make appropriate decisions (3.1)
Prepare Cash Budget for the first quarter of 2016.
Determine if there would be available cash to purchase the Delivery Truck worth P1,000,000
Determine how much financing is needed to acquire the Delivery Truck and to maintain its required
minimum cash balance.
To earn D3, present a well- structured projected income statement for the quarter and statement of financial
position as of end of Quarter 1. Comment and make recommendations on the budgeted financial statements..
Figures should be correct showing all calculations.
6. Calculate unit costs and make pricing decisions using relevant information (3.2)
Consider Absorption and Contribution Margin methods in the calculation of unit cost,
Calculate mark-up percentages to achieve desired return for both methods.
Calculate and decide compute the
selling price per unit.
To earn M3, determine the number of units that Macapagal Enterprise should sell to earn the desired income.
Present in appropriate structure.
7. Assess the viability of a project using investment appraisal techniques (3.3)
Use the following techniques in your assessment:
o Payback Period
o Accounting Rate of Return (ARR)
o Net Present Value (NPV)
o Internal Rate of Return (IRR)
To earn D1, make an overall conclusion on the investment of North Way Enterprise, given the information on the
second truck (Blue Box)

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GRADING:
Pass

All criteria identified in the assignments are met.

Merit

Must firstly achieve all conditions for a Pass.

M1- Must justify which option is better by calculating Earnings Before Interest and Taxes (EBIT) that would make
both financing options to breakeven.
M2 Must show that a range of sources of information has been used. Sources may include at least 2
Finance/Accounting Textbooks, 2 internet websites and 1 Finance/Accounting journal or annual report. List the
reference materials on the last page of your assignment.
M3 Must determine the number of units that Macapagal Enterprise should sell to earn the desired income.
Present in appropriate structure.
Distinction Must firstly achieve all conditions for a Merit.
D1 Must make an overall conclusion on the investment of North Way Enterprise, given the information on the
second truck (Blue Box)
D2 Must interview a business owner or its manager to inquire on its budget preparation process. Show
evidence by providing photographs and transcript of the interview.
D3 Must present a well- structured projected income statement for the quarter and statement of financial
position as of end of Quarter 1. Comment and make recommendations on the budgeted financial statements..
Figures should be correct showing all calculations.

GRADING:
Pass

All criteria identified in the assignments are met.

Merit

Must firstly achieve all conditions for a Pass.

M1- Must make effective judgment in choosing between 100% equity financing and 100% debt financing by
solving the amount of Earnings Before Interest and Taxes (EBIT) that would make both financing options to
breakeven. Generate conclusion..
M2 Must show that a range of sources of information has been used. Sources may include at least 2
Finance/Accounting Textbooks, 2 internet websites and 1 Finance/Accounting journal or annual report. . List the
reference materials on the last page of your assignment..
M3 Must determine number of units that Macapagal Enterprise. should sell to achieve the desired income.
Distinction Must firstly achieve all conditions for a Merit.
D1 Must make an overall conclusion on the investment of North Way Enterprise, given the information on the
second truck (Blue Box)
D2 Must interview a business owner or its manager to inquire on its budget preparation processes.
Provide photograph and transcript of the interview.
D3 - Must present a correct and well-structured projected Income Statement for the quarter and Statement of
Financial Position as of end of Quarter 1 based on the chosen financing option. Indicate assumptions made on
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the projected financial statements. Show all calculation.

Merit/Distinction descriptors indicative characteristics should be indicated.(M1, M2, M3, D1, D2, D3)
Notes

Follow the report format which accompanies this brief.

Word-process the document using 12 point Arial or Times New Roman script.

Compile all documentation to be submitted in a portfolio as evidence to support other assignments.

Complete the title page and sign the statement of authenticity.

Use the Harvard referencing system.

Show evidence of academic research (i.e. a minimum of 2 books for Business students, journals, and
websites).

Survey questionnaires, answered forms, proposed forms and the like are also part of the appendix.

Draft proposals will be discussed at the tutorials in the week beginning 26 February 2016

Use a butterfly or treasury tag to keep the pages of your work together.

Rules on late submission shall be strictly observed, viz:

-

Only a one-week extension shall be allowed from due date. (For this assignment, it will
be on 30 March, 2016.
Only assignments submitted on or before due date shall earn descriptors.

Submit your work to the assessor no later than the end of the period on 23 March 2016.

Subject to change per requirements of assessor.

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