Faculty of Business and Management

Academic Year 2024/25

Module Name:

Financial Management

Module Code: AF2FMT

BSc Accounting and Finance

BSc Business and Management

Module Leader: Dr. Salman Nusrat

Student ID:…………….
Presentation Requirements:

The submission should be in the form of a PDF (and one MS Excel) document that clearly identifies your
answers corresponding to the relevant question numbers.

Font style: Book Antiqua

Font Size: 12

Line Spacing: 1.5

Plagiarism: Your Assignment will be submitted through Turnitin. Any similarity beyond the acceptable
limit or AI use detection will be considered as a misconduct.

Submission Deadline: 4:00 pm (Oman) on 3rd January 2025.

Assessment Weighting for the Module:

Maximum word
Overall module count
Task Portfolio weighting
weighting
+/- 10%

1 100 40% 1,000 words

Please include your ID but keep your name anonymous.

All submissions will be through Moodle.

 Declaration

I hereby declare that I have personally prepared this coursework. The

work is my own, carried out personally by me unless otherwise stated
and has not been generated using paid-for assessment writing services or
Artificial Intelligence tools unless specified as a clearly stated approved
component of the assessment brief. All sources of information, including
quotations, are acknowledged using the appropriate citations and
references. I declare that this work has not gained credit previously for
another module at this or another University, save for permitted
elements which formed part of an associated proposal linked directly to
this submission.
I understand that plagiarism, collusion, copying another student and
commissioning (which for the avoidance of doubt includes the use of
essay mills and other paid-for assessment writing services, as well as
unattributed use of work generated by Artificial Intelligence tools) are
regarded as offences against the University’s Assessment Regulations
and may result in formal disciplinary proceedings.
I understand that by submitting this assessment, I declare myself fit to be
able to undertake the assessment and accept the outcome of the
assessment as valid.

Signature: ____________________________

Student ID: ___________________________

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Learning Outcomes Covered in this Coursework:

Module Learning Outcomes

At the end of this module, a student should be able to:
1 Analyse and interpret data to solve practical problems with the application of relevant
techniques
2 Communicate qualitative and quantitative financial concepts to financial audiences
3 Demonstrate knowledge of the sources of finance available to firms and related theories
on capital structure and calculation of costs and value.

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Question 1:

‘2020 was an annus horribilis for anyone reliant on dividend income to support themselves
financially.

The Bank of England ordered banks to suspend dividends when the pandemic struck, telling
them to hoard cash to get through the crisis. Nearly every other listed company followed suit
leaving hundreds of thousands of pensioners with a serious hit to their finances.’

Inews.co.uk – Sarah Davidson April 2021

Requirements:

a) Discuss the main dividend policies that companies tend to follow, and why
shareholders may be adversely affected when the policy changes, as during
the 2020 world pandemic.

(15 marks)

b) A company wishing to pay a large dividend will need the cash with which to do
so. If that is not readily available, discuss the options of raising the cash via
debt or equity from the company’s perspective.

(10 marks)

Total 25 marks

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Question 2:

Abaca Plc wishes to undertake expansion via the purchase of a new piece of machinery
costing £2 million. In order to appraise the investment, the Finance Director needs a reliable
estimation of the company’s current cost of capital.

There are currently 1 million shares in issue each with a share price of £4.15. The return on
equity for the company is 9% and a dividend has just been paid of £0.45. The Earnings Per
Share is £1.00.

The 5% Preference shares have a book value of £100,000 and a nominal value of £0.50.
The current share price is £0.62.

There are £500,000 8% bonds issued at a market value of £90. They are redeemable in 5
years’ time at a 5% premium.

Tax is at a rate of 25%.

Requirements:

a) Calculate the Weighted Average Cost of Capital (WACC) for Abaca Plc, based
on market values.

(13 marks)

b) Discuss the advantages of using market values in a WACC calculation, as well

as the advantages of using book values instead.

(6 marks)

The Finance Director is contemplating issuing some convertible debt.

c) Explain how the annual percentage cost of convertible debt would be

calculated, including the valuation of the future share price.

(6 marks)

Total 25 marks

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Page 7 of 14
Question 3:

Bobon Plc has decided to look for a company to takeover in order to diversify its business
interests. The Chief Executive is looking at three different companies in the same industry
and would like an estimate of the market capitalisation of each one.

She has provided you with the following information:

Candy Ltd has just paid a dividend of £150,000 compared with a dividend payment five
years ago of £95,000. The industry it is in has an average beta of 0.8.

Diego Ltd recently published their financial statements, which show an operating profit of
£575,000 and a profit after tax of £325,000.

Ergon Ltd has recently announced that it has Free Cash Flows of £425,000 for the next year,
and that they should grow at 3% per annum over the next three years, and from then on the
growth should be 2% per annum for the foreseeable future.

The return on the market is 14% and gilts have a return of 4%. The average P/E of the
industry is 8. Bobon Plc has a cost of capital of 8%.

Requirements:

a) Produce calculations of the market value of equity for each of the three
companies Candy Ltd, Diego Ltd and Ergon Ltd, to the nearest £’000.
(11 marks)

b) Write a report to the Chief Executive informing her of the valuations you
have calculated in part a. Include the advantages and disadvantages of
each of the methods used.
(14 marks)

Total 25 marks

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Question 4:
Reece Ltd has flourished in its industry for a number of years but has suffered from a lack of
sales during the 2020 pandemic.

The purchasing manager has asked your advice on how to save money on the inventory
purchased. The main item is a material called Plasto and the manager has given the
following information about the current purchasing arrangements:

The cost of placing an order for Plasto is £300 which includes transport and administrative
costs; the monthly demand is for 100,000kg at a cost of £10 per kg; the average cost of
holding a kg is £125.

Currently the Economic Order Quantity (EOQ) is used for placing orders, but the supplier is
stating that if Reece Ltd were to order 1,500kg per order, a 1.5% discount on the purchase
price would be given.

Since normal production was resumed in the middle of 2021, there has been a cash flow
issue. The cash operating cycle has increased from 31 days in early 2020 to 55 days
currently. This is of great concern to the Finance Director who wants to reduce this to 25
days if possible.

Requirements:

a) Calculate the Economic Order Quantity (EOQ) of the widgets for Reece Ltd.
(3 marks)

b) Produce calculations for:

i) the current annual cost of inventory, and
ii) the cost if the discount is accepted. Recommend whether or not the
discount should be accepted.
(10 marks)

iii) Write a set of notes to present to the Board of Directors of Reece Ltd
giving suggestions as to how the Cash Operating Cycle could be
reduced, including how each suggestion could affect the company
overall, including both financial and non-financial considerations.

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 (12 marks)

Total 25 marks

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INSTRUCTIONS

There should be one MS Word file / PDF file and one Ms Excel File as part of the
submission.

Introduction section will include company profile of the chosen firm, products and services
offered by the firm and financial highlights.

Conclusion section will include the summary, overall learning derived and synthesis of all
the task done in the assignment.

Proper in-text referencing wherever applicable and a minimum of 10 references (APA

format) are expected from this assignment.

Plagiarism: Your Assignment will be submitted through Turnitin. Any similarity beyond the
acceptable limit or AI use detection will be considered as a misconduct.

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Assessment Criteria

Learning 0-49.9% 50-53.9% 54 – 65.9% 65-77.9% 78+

outcomes

Critically examine Little or no evidence of Evidence of a basic or Some evidence of a basic or Answers evidence a good Answers evidence an
the theories and knowledge or outline knowledge of outline shareholder value knowledge and excellent knowledge and
concepts related understanding of technical application of creation, financial planning, understanding for the understanding for the
shareholder value shareholder value creation, shareholder value creation, implementation and correct application of correct application of
creation, financial financial planning, financial planning, management in uncertain shareholder value shareholder value
planning, implementation and implementation and environments. Outcomes are creation, financial creation, financial
implementation management in uncertain management in uncertain required to answer objective planning, implementation planning, implementation
and management environments. environments.however, there test questions demonstrate and management in and management in
in uncertain are errors when tackling ability to answer questions uncertain environments. uncertain environments.
environments. more complex issues. which require basic Responses to the Responses to the
application, however, there objective test questions objective test questions
are errors when tackling more demonstrate ability to demonstrate ability to
complex issues. correctly undertake and correctly undertake
apply relevant knowledge calculations and apply
and concepts. There have financial knowledge and
been some errors in the concepts. There have
most technically been no or very few
challenging issues or

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 lengthy calculations errors.
where there may be minor
process errors.
Apply appropriate Little or no evidence of Evidence of a basic or Some evidence of a basic or Answers evidence a good Answers evidence an
concepts and knowledge or outline knowledge of outline of strategic and knowledge and excellent knowledge and
reasoning to understanding of strategic technical application of financial data. Outcomes are understanding for the understanding for the
understand and financial data. strategic and financial data. required to answer objective correct application of correct application of
strategic and However, there are errors test questions demonstrate strategic and financial strategic and financial
financial data to when tackling more complex ability to answer questions data. Responses to the data. Responses to the
generate issues. which require basic objective test questions objective test questions
appropriate application, however, there demonstrate ability to demonstrate ability to
credible decisions. are errors when tackling more correctly undertake and correctly undertake
complex issues. apply relevant knowledge calculations and apply
and concepts. There have financial knowledge and
been some errors in the concepts. There have
most technically been no or very few
challenging issues or errors.
lengthy calculations
where there may be minor
process errors.
Critically examine Little or no evidence of Evidence of a basic or Some evidence of a basic or Answers evidence a good Answers evidence an
methods to the knowledge or outline knowledge of outline of financial knowledge and excellent knowledge and
appraisal of understanding of financial technical application of statements and how these understanding for the understanding for the
financial statements and how these financial statements and how form the basis of making correct application of correct application of

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statements and form the basis of making these form the basis of decisions in financial financial statements and financial statements and
how these form decisions in financial making decisions in management and capital how these form the basis how these form the basis
the basis of management and capital financial management and investment. Outcomes are of making decisions in of making decisions in
making decisions investment. capital investment. required to answer objective financial management financial management and
in financial test questions demonstrate and capital investment. capital investment.
management and ability to answer questions Responses to the Responses to the
capital which require basic objective test questions objective test questions
investment. application, however, there demonstrate ability to demonstrate ability to
are errors when tackling more correctly undertake and correctly undertake
complex issues. apply relevant knowledge calculations and apply
and concepts. There have financial knowledge and
been some errors in the concepts. There have
most technically been no or very few
challenging issues or errors.
lengthy calculations
where there may be minor
process errors.

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