UNIVERSITY OF SUNDERLAND

AND
MANAGEMENT DEVELOPMENT INSTITUTE OF SINGAPORE
IN TASHKENT

Module Code and Title : UGB254 Fundamentals of Business Finance

MDIS Module Leader : Mr Lim Khai Seng

Assessment : Individual Assignment

Submission Due Date : 19 May 2023

Word Length : 3,000 words +/- 10%

Weighting within Module : 100%

Assignment Submission
Students are required to submit their coursework through CANVAS. Only assessments
submitted through CANVAS will be marked. Any other submission including submission to
your study centre in hard copy will be treated as a non-submission.

PLAGIARISM/INFRINGEMENT STATEMENT
All Assessments are subject to the University’s Policy on 'Cheating, Collusion and
Plagiarism'. Students found guilty of this are subject to severe penalties.

This is an INDIVIDUAL piece of work - If there is evidence that the work is not wholly
attributable to you, the University's policy on 'Cheating, Collusion and Plagiarism' will
be applied

Link to University Academic Integrity and Misconduct Policy

https://services.sunderland.ac.uk/academicregistry/academicqualityhandbook/programmeregu
lationsandassessment/#ac-integrity

Fonts
Use a clear, readable font, such as Verdana, Calibri, Tahoma or Arial and use the same font
throughout.Use black text on a white background.
Use 11 or 12-point font for the body of your assessment.

Spacing
Use 1.5 spacing and 2.53 cm (1”) wide margins.
Leave a blank line between paragraphs

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Individual assignment

Requirements:

Select and attempt any TWO Parts from the following three Parts. Each part that is attempted
will carry a maximum mark of 50%.

Part A

Question 1

Tashkent Cooler Ltd is a well-established company, which manufactures and markets domestic
air conditioners. One of its current products is air conditioner called ‘Unique Cool’. A sales
volume of 180,000 units will be achieved during the year ending 31 December 2022.

The new product development team within Tashkent Cooler Ltd has designed a new air
conditioner called the “Energy Savers” which will reduce consumption of electricity drastically
and uses recycled materials. It is environmental friendly. The Green Environment Society is
particularly pleased with TASHKENT Cooler Ltd’s new product when the company first
announced it in their press release in January 2022.

The board of directors recently engaged ‘’Publicity’’, a market research consultancy to

undertake to study the likely demand for the “Energy Savers” for which a fee of US$100,000.00
was paid. Their findings revealed that consumer tastes have changed insofar as they now seek
more energy-efficient home appliances. The consultants produced the following estimate of
annual sales that may be achieved at the intended launch price of US$400 per unit together with
their associated probabilities.

Sales units per annum Probability

125,000 0.30
100,000 0.40
75,000 0.30

The board of directors had decided that expected value of the sales unit should be applied in all
calculations.

The board of directors are considering when to replace the “Unique Cool” with the “Energy
Savers “ model and have asked you to advise them accordingly . The following information is
available to you.

The current selling price per unit of the “Uniquee Cool” is US$320.00. It will not be possible
to achieve any further increases in selling priced during the remainder of the products life. The
variable cost of manufacturing the “Energy Super Savers” is US$200.00 per unit.

The manufacture of the “Super Savers” requires a change in manufacturing technology that will
require an immediate capital outlay of US$2,400,000.00. The capital outlay will ensure that
Tashkent Ltd has sufficient manufacturing capacity to cope with whatever level of demand
should arise.

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It will not be possible to manufacture “Energy Savers” and “Unique Cool” at the same time. If
the Board of Directors decided to go ahead with “Energy Savers”, then the manufacturing of
“Unique Cool” must be halted permanently.

The variable costs of manufacturing the “Energy Savers” is expected to be S$220.00 per unit.

The introduction of the “Super Savers” model will increase fixed costs by S$300,000 per
annum.

The board of directors uses a cost of capital of 9% pr annum to evaluate new investments.

The board of directors expects a decline in sales volume during each year that they continue to
market the “Unique Cool”. The marketing director has stated that the minimum reduction in
sales volume that will occur in the year ending 31 December 2022 is 10,000 units and that for
each additional year that manufacture takes place a further minimum reduction of 10,000 units
will occur.

Required:

a) Prepare a evaluation of the proposed replacement of the “Unique Cool” by the “Energy
Savers “from 1 January 2023 till 31 December 2026 on purely financial grounds (using NPV
approach). (10 marks)

b) Calculate the minimum reduction in sales volume of the “Unique Cool” which will
apply in the year ending 31 December 2022 and for each additional year thereafter (ie which
will replace the 10,000 units stated in the note above),in order to justify the withdrawal of the
“Unique Cool” from the market with effect from 1 January 2023.
(10 marks)

c) Explain the limitations of the analysis performed in part (a) and suggest how the boards
of directors could address those limitations before making decision regarding when to cease
manufacture of the “Unique Cool”. (7 marks)

d) Explain the potential benefits that may arise as a consequence of a decision by the board
of directors to cease the manufacture of the “Unique Cool” with immediate effect, irrespective
of the financial consequences of such decision. (3 marks)

Assume that all cash follows other than where stated will place at the end of each year

(Total: 30 marks)

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Question 2

Critically discuss what factors Tashkent Cooler Ltd will take into account in deciding whether
to lease or buy/invest in plant and machinery
(20 mark)

(PART A Total 50 marks)

PART B

Question 1

The directors of MDIST are considering a planned investment project costing $25m, payable
at the start of the firstyear of operation to build an extension to the main campus to produce
quality university study materials in diskettes or scan disk at affordable fees for needy students
.. The following information relates to the investment project:

Year 1 Year 2 Year 3 Year 4

Sales volume (units/year) 520,000 624,000 717,000 788,000
Selling price (US $/unit) 30·00 30·00 30·00 30·00
Variable costs (US $/unit) 10·00 10·20 10·61 10·93
Fixed costs (US $/year) 700,000 735,000 779,000 841,000

As all the raw materials are imported from the western countries, the directors want the
accountant to adjust/take into account of selling price inflation of 4% per year and variable cost
inflation of 3% per year. The fixed costs, which are incremental and related to the investment
project, are in nominal terms. The year 4 sales volume is expected to continue for the
foreseeable future.

MDIST pays preferential corporation tax of 30% one year in arrears. MDIST can claim tax-
allowable depreciation on a 25% reducing balance basis.

The directors of MDIST are of the opinion that all investment projects must be evaluated over
four years of operations,with an assumed terminal value at the end of the fourth year of 5% of
the initial investment cost. Both net present value and discounted payback must be used, with
a maximum discounted payback period of two years. The real after-taxcost of capital of MDIST
is 7% and its nominal after-tax cost of capital is 12%.

Required:
(a) (i) Calculate the net present value of the planned investment project. (10 marks)
(ii) Calculate the discounted payback period of the planned investment project. (5 marks)
(b) Discuss the financial acceptability of the investment project. (5 marks)
(c) Critically discuss the views of the directors on MDIST’s investment appraisal. (10 marks)
(Total 30 marks)

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Question 2

Discuss the circumstances under which it is appropriate to use the current WACC of MDIST in
appraising an investment project (10 marks)

Question 3
Discuss the advantages and disadvantages to MDIST of using convertible loan notes as sources
of long-term finance.
(10 marks)

(PART B Total: 50 Marks)

PART C
Question 1

Critically discuss the advantages and disadvantages of a currently unquoted company obtaining
a listing and public quotation on a recognised stock exchange
(16 marks)

Question 2.

In US, UK, as well as in other developed countries, the proportion of ordinary shares held by
institutional investors/financial intermediaries has been increasing. Hence, the proportion held
by private individual investors has reduced.
Critically discuss and distinguish the major types of institutional investors who have become
increasing important as holders of ordinary shares. Discuss the main reasons for the growth of
their importance and the main implications of this increased importance of institutional
investors for the operations of the stock Exchange.
(18 marks)

Question 3

Critically discuss the main merits and disadvantage to the issuing firm, of having an issue of
new capital underwritten. Specify for which of the main methods of equity issue, it may be
advisable for the issuing company to have the issues underwritten.
(16 marks)
(PART C Total: 50 Marks)

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References:

Net Present Value - Wize University Introduction to Finance ...

https://www.wizeprep.com › finance › sections

16.2 Net Present Value (NPV) Method - Principles of Finance

https://openstax.org › books › principles-finance › pages

Grindal, chief economist at Ned Davis Research. Video Episode 37. Play Video.
Research · Investors · Institutional Investor · Portfolio

Institutional investors and ownership engagement | OECD

https://www.oecd.org › finance › Institutional-inv...

Advanced investment appraisal | F9 Financial Management

https://www.accaglobal.com › student › technical-articles

What is Underwriting? Definition of ... - The Economic Times

https://economictimes.indiatimes.com › ... › Econom

Institutional Ownership: Pros and Cons - Investopedia

https://www.investopedia.com › ... › Investing Basics

PDF

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 Generic Assessment Criteria – Undergraduate Bachelor’s degree
These should be interpreted according to the level at which you are working
Categories
Grade Relevance Knowledge Analysis Argument and Structure Critical Evaluation Presentation Reference to Literature
86 – The work examined is exemplary and provides clear evidence of a complete grasp of the knowledge, understanding and skills appropriate to the Level of the
100% qualification. There is also unequivocal evidence showing that all the learning outcomes and responsibilities appropriate to that Level are fully satisfied. At this level it is
expected that the work will be exemplary in all the categories cited above. It will demonstrate a particularly compelling evaluation, originality, and elegance of argument,
interpretation or discourse.
76-85% The work examined is excellent and demonstrates comprehensive knowledge, understanding and skills appropriate to the Level of the qualification. There is also
excellent evidence showing that all the learning outcomes and responsibilities appropriate to that level are fully satisfied. At this level it is expected that the work will be
excellent in the majority of the categories cited above or by demonstrating particularly compelling evaluation and elegance of argument, interpretation or discourse and
there may be some evidence of originality
The work examined is of a high standard and there is evidence of comprehensive knowledge, understanding and skills appropriate to the Level of the qualification.
70 – There is also clearly articulated t evidence demonstrating that all the learning outcomes and responsibilities appropriate to that level are satisfied At this level it is
75% expected that the standard of the work will be high in the majority of the categories cited above or by demonstrating particularly compelling evaluation and elegance of
argument, interpretation or discourse.
Directly relevant to A substantial Good analysis, Generally coherent and May contain some Well written, with Critical appraisal of up-to-
60 – the requirements knowledge of clear and orderly logically structured, using distinctive or standard spelling date and/or appropriate
69% of the assessment relevant material, an appropriate mode of independent thinking; and grammar, in a literature. Recognition of
showing a clear argument and/or may begin to readable style with different perspectives.
grasp of themes, theoretical mode(s) formulate an acceptable format Very good use of source
questions and independent position material. Uses a range of
issues therein in relation to theory sources
and/or practice.
Pass

Some attempt to Adequate Some analytical Some attempt to construct Sound work which Competently Uses a variety of literature
50 – address the knowledge of a fair treatment, but a coherent argument, but expresses a coherent written, with only which includes some
59% requirements of range of relevant may be prone to may suffer loss of focus position only in broad minor lapses from recent texts and/or
the assessment: material, with description, or to and consistency, with terms and in uncritical standard grammar, appropriate literature,
may drift away intermittent narrative, which issues at stake stated only conformity to one or with acceptable though not necessarily
from this in less evidence of an lacks clear vaguely, or theoretical more standard views format including a substantive
focused passages appreciation of its analytical mode(s) couched in of the topic amount beyond library
significance purpose simplistic terms texts. Competent use of
source material.
40 – Some correlation Basic Largely A basic argument is Some evidence of a A simple basic style Some up-to-date and/or
49% with the understanding of descriptive or evident, but mainly view starting to be but with significant appropriate literature
requirements of the subject but narrative, with supported by assertion formed but mainly deficiencies in used. Goes beyond the
the assessment addressing a little evidence of and there may be a lack derivative. expression or material tutor has
but there are limited range of analysis of clarity and coherence format that may provided. Limited use of
instances of material pose obstacles for sources to support apoint.
irrelevance the reader

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 35 – Relevance to the A limited Heavy Little evidence of coherent Almost wholly Numerous Barely adequate use of
39% requirements of understanding of a dependence on argument: lacks derivative: the writer’s deficiencies in literature. Over reliance
the assessment narrow range of description, development and may be contribution rarely expression and on
may be very material and/or on repetitive or thin goes beyond presentation; the material provided by the
intermittent, and paraphrase, is simplifying writer may achieve tutor.
may be reduced to common paraphrase clarity (if at all) only
its vaguest and by using a
least challenging simplistic or
terms repetitious style
Fail

The evidence provided shows that the majority of the learning outcomes and responsibilities appropriate to that Level are satisfied – for compensation consideration.
30 – The work examined provides insufficient evidence of the knowledge, understanding and skills appropriate to the Level of the qualification. The evidence provided
34% shows that some of the learning outcomes and responsibilities appropriate to that Level are satisfied. The work will be weak in some of the indicators.

15-29% The work examined is unacceptable and provides little evidence of the knowledge, understanding and skills appropriate to the Level of the qualification. The evidence
shows that few of the learning outcomes and responsibilities appropriate to that Level are satisfied. The work will be weak in several of the indicators.
0-14% The work examined is unacceptable and provides almost no evidence of the knowledge, understanding and skills appropriate to the Level of the qualification. The
Evidence fails to show that any of the learning outcomes and responsibilities appropriate to that Level are satisfied. The work will be weak in the majority or all of the
indicators.

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