Page 1 of 9

ASSIGNMENT 1: FINANCIAL MANAGEMENT

(FM303B)

SEMESTER: ONE

STUDY UNITS COVERED: STUDY UNITS 1 TO 3

SUBMISSION DEADLINE: 23:59 ON 23 APRIL 2021

FOR COMPLETION ON ELEARN

TOTAL MARKS: 65

MATERIAL SUPPLIED: WHERE APPLICABLE

© IMM Graduate School

st
Assignment One: 1 Semester 2021 FM303B
 Page 2 of 9

INSTRUCTIONS TO CANDIDATES FOR COMPLETING AND SUBMITTING

ASSIGNMENTS

1. You must submit TWO assignments for this module.

2. This assignment will count out of 65 marks. And assignment 1 & 2 will contribute 40% towards the
final module mark. The remaining 60% will be contributed by the examination, however, the
examination papers will count out of 100 marks.
3. Examination entrance is not dependent on students submitting an assignment.
4. The assignment due date refers to the day up to which assignments will be accepted for marking
purposes. The deadline is 23:59 on the assignment due date. NO Late assignment submissions
will be accepted
5. All Assignments must be submitted in four steps on eLearn:
1. Prepare your work for submission (Converting a Word document into a PDF document).
2. Receive a Similarity Report from Turnitin, “Check my work for similarity,” activity.
3. Review the Similarity Report (review your work where report indicates similarities).
4. Upload the Similarity Report (generated by following step 1) for marking.

NB: Your Assignment will not be marked if you do not follow the steps outlined above.
No other documents such as Word or PPT will be accepted.

6. If you fail to follow these instructions carefully, the IMM Graduate School cannot accept responsibility
for the non-marking of the Assignment.

7. Important Notes:
● If your submission document is suspected of possible syndication or plagiarism you will
receive zero and disciplinary action will be taken against you.
● If there is any indication that answers were shared amongst students via any
communication channel including Internet or social media the students involved will
receive zero and disciplinary action will be taken against all parties involved.
● Answers provided should be in your OWN words. If it is merely a ‘copy and paste’ from a
textbook or any online or other source zero marks will be awarded.

There is no word limit on the Assignment submission, however students are encouraged to produce a
concise, well-formulated assessment, in a neat and properly structured format.

8. Spellcheck your Assignment using English (South Africa) or English (UK).

© IMM Graduate School

st
Assignment One: 1 Semester 2021 FM303B
 Page 3 of 9

SPECIFIC INSTRUCTIONS TO STUDENTS

STUDY GUIDE
This assignment covers Study Unit 1 to 3 of your study guide – IMM Graduate School.
(2020) Financial Management 3 (FM303B). South Africa: IMM Graduate School.
It is only when you use your own words that the markers are able to establish whether
you understand the concepts outlined in the study notes. The markers are then in a
better position to offer you constructive feedback. Students are therefore required to
provide their own interpretation of the questions and concepts. Simply rewriting from
the study guide or a textbook will not result in any marks being awarded.
Students are reminded that this is an individual effort and group submissions will be
penalised.
The use of calculators is permitted. Show ALL calculations.
Read all questions carefully to determine exactly what is required before attempting to
answer.
Number your answers clearly and set them out under appropriate headings and
subheadings.
Unless otherwise required, round off all financial calculations to the nearest rand and all
ratios to two (2) decimal places.
Students are reminded that assignment mark allocation is not the same as exam mark
allocation. You are expected to give comprehensive, well-considered answers to
assignment questions. Marks are allocated if you show evidence of your understanding
of the subject matter. This may need more than just short phrases or unexplained
calculations.
Students need to use correct in-text referencing and provide a reference list for those
questions where this is indicated. Seven references are not required as for theory and
applied theory modules.
Handwritten or partially handwritten assignments are acceptable provided they are
uploaded to eLearn as pdf files.
The IMM uses the South African convention for decimals and thousands, being a
decimal comma and a space for the thousands delimiter, as required by the
Department of Higher Education and Training. Students may use other conventions
provided these are used consistently.

Answer ALL questions.

© IMM Graduate School

st
Assignment One: 1 Semester 2021 FM303B
 Page 4 of 9

SECTION 1 – Study Unit 1 – Marketing = shareholder value creation [20]

1.1 In the past year, a shareholder in a listed services organisation achieved a
share price gain of R370 and received dividends of R7 per share. The current
share price is R1 952.
Discuss what this means to the shareholder with respect to shareholder
wealth. (6)
1.2 Explain how marketing may have contributed to this increase in shareholder
wealth? (5)
1.3 With reference to an online shopping organisation of your choice, discuss two
ways that the company can measure its achievement of the customer
perspective of the balanced scorecard and why these are important for
increasing brand equity. Indicate the customer-related metrics that can be
used in each case.
Provide a brief, one-sentence, and correctly referenced introduction to the
company you have chosen. Your example must have correctly referenced
sources (in-text and reference list). No marks will be awarded for an incorrectly
referenced example. Copying from another student is plagiarism and will result
in disciplinary action. (9)

© IMM Graduate School

st
Assignment One: 1 Semester 2021 FM303B
 Page 5 of 9

SECTION 2 – Study Unit 2 – Forecasting in the marketing environment [30]

Bold Brands Limited (BBL) is a marketing agency that provides brand communication
services to organisations in the retail sector. Market research has indicated a
demand for digital communication services of R600 million, increasing by at least
20% per year.
BBL is considering launching digital marketing communication services on
1 January 2021. The company’s strategic forecasting horizon is three years.
You have been asked to assist with cash-flow forecasting for BBL to introduce the
new service.
The following information is available:
The company’s existing services have created high brand equity through client
loyalty, and sales have grown steadily over the past years. With the introduction of
digital services, BBL becomes a full-service agency.
The synergistic value created by the new division is expected to result in a once-off
increase in traditional sales of 40 units – over and above the normal 12% growth rate
of advertising sales. Thereafter all BBL sales volumes are expected to grow at a rate
of 10% per year. (Note: This increase for 2021 must be based on 2020 sales,
excluding the additional 40 units).
BBL expects to complete 60 digital projects in 2021, increasing by 18% every year
thereafter. The average fee for a digital project is estimated to be R250 000.
Traditional projects are achieving average revenue of R1,6 million per project.
BBL’s historical revenue is as follows:

Traditional projects 2020 2019 2018

Sales 225 projects 200 projects 170 projects

The contribution margin ratio for traditional projects in 2020 was 20%. Digital projects
are expected to achieve a contribution margin ratio of 40% in 2021.
The marketing budget for both services (in total) is R22 million in 2021. Of this, 15%
is to be allocated to marketing the new digital products.
BBL’s direct variable costs consist primarily of staff costs. Staff salaries are expected
to increase by 8% per year. Digital marketing staff are to be hired in 2021 at the start
of the new venture. Because their initial salaries are much higher than those offered
by the market, their salaries are expected to increase by only 7% per year.

© IMM Graduate School

st
Assignment One: 1 Semester 2021 FM303B
 Page 6 of 9

Project fees and all expenses other than staff costs are budgeted to increase
annually by the inflation rate of 4%. During 2020 R6 million was spent on the
establishment of the new service. These expenses will be capitalised over three
years and are tax deductible.
The company’s WACC is 14%. The corporate tax rate is 28%.
2.1 Forecast the demand (number of projects) for each of the years (2021, 2022
and 2023) for BBL’s traditional services. (1)
2.2 Using your answer from Question 2.2, forecast the total contribution for the
company (after marketing expenses have been taken into account) for the
next three years (2021, 2022 and 2023).
A suggested format is provided below. (7)

2021 2022 2023

Traditional projects
Average fee (per project)
Variable cost (per project)
Contribution (per project)
Number of projects sold
Total contribution
(before marketing expenses)
Digital projects
Average fee (per project)
Variable cost (per project)
Contribution (per project)
Number of projects sold
Total contribution
(before marketing expenses)
Total contribution for the company
Marketing expenses
Total contribution
2.3 Calculate and explain whether the NPV of the forecasted additional
contribution made by digital services only, calculated in Question 2.3, is
acceptable. Remember to include marketing expenses and establishment
costs.
Comment on your findings and recommend to BBL whether to continue with
the establishment of the new service.

© IMM Graduate School

st
Assignment One: 1 Semester 2021 FM303B
 Page 7 of 9

Show an NPV schedule and all workings.

A suggested format is provided below. (5)

Up front
NPV for digital services 2021 2022 2023
(time 0)
Contribution
(before marketing expenses)
Marketing expenses
Initial R&D cost
Profit before tax
Tax shield
(from R&D amortisation)
Profit
(for tax calculation only)
Tax
Net cash flow
2.4 BBL is concerned about the digital services division’s direct variable costs.
Expert employees are difficult to source, and the company is worried that the
budgeted annual salary increases of 8% will be insufficient.
Calculate the sensitivity of these direct variable costs relative to the NPV and
explain your answer. (5)
2.5 List and explain two (2) examples of external environmental variables that
may negatively influence BBL’s forecast. (2)
2.6 BBL’s forecasted net cash flows for the digital services may vary by 25%
either way.
2.6.1 Perform a scenario analysis for BBL calculating and commenting on the
NPV for the base, best and worst-case scenarios. (4)
2.6.2 Based on the scenario analysis, do you recommend that BBL still
pursue the digital service opportunity? Why, or why not? (1)
2.7 Calculate the revenue market share for digital services for each of the next
three years (2021, 2022 and 2023) based on the forecast you have developed.
Comment on the results. (4)
2.8 Why is it important for BBL to use scenario analysis? (1)

© IMM Graduate School

st
Assignment One: 1 Semester 2021 FM303B
 Page 8 of 9

SECTION 3 – Study Unit 3 – The pricing decision [15]

3.1 Explain the link between pricing strategy and shareholder wealth. (3)
3.2 A leather goods brand markets two products: leather purses and leather
wallets. The purses are priced at R550 each and the wallets at R480 each.
Monthly demand for the products in a high-income area is 400 purses and 300
wallets.
The PED for the products is 1,4 and 0,6 respectively.
Believing that leather goods are luxury items, as their demand is not too
sensitive to a price increase, the marketing department proposes that a 20%
price increase on all its products will increase revenue.
Required:
Advise the marketing department on whether their price increase strategy is a
good idea and provide recommendations to the company on how to proceed
to increase revenue.
Show all calculations, including the PED calculations for every product,
indicating the total revenue increase the brand can expect if your
recommendations are applied.

© IMM Graduate School

st
Assignment One: 1 Semester 2021 FM303B
 Page 9 of 9

You may use the template below as a guideline for your calculations:

Marketing department proposal

Purses Current After price increase Difference
Price
Demand
Total revenue

Wallets Current After price increase

Price
Demand
Total revenue

Both products

Recommendation: Current Recommended Difference

Purses
Price
Demand
Total revenue

Wallets
Price
Demand
Total revenue

Both products

Remember to interpret your calculations. Providing only calculations is

insufficient. (12)
ASSIGNMENT TOTAL: 65

© IMM Graduate School

st
Assignment One: 1 Semester 2021 FM303B