Sample of Finance Assignmnt

SAMPLE OF THE STUDENT WHO GOT PASSED

Financial Resource Management & Performance

British Sky Broadcasting Group plc (BskyB)

The purpose of this report is to know how a company receives, manage, and apply

financial & other resources to meet objectives and requirements. Whole report is

divided into three components. Component 1 comprises different stakeholders of

BskyB with different interest and priorities. Component 2 comprises business and

financial performance of BskyB with the help of financial ratios and horizontal

analysis. In component 3, different investment appraisal techniques are discussed

with an example of 123 LTD that wants to set up a manufacturing unit in one of

three countries- USA, France and Switzerland.

Component 1

Stakeholders: BskyB

A Stakeholder is one who is directly or indirectly attached with company’s

resources, attention and output and both affects each other in one way or other

(Bryson, 2011). Each stakeholder has different interest with company’s business

and company’s output affects them in different level. Customers, Political parties,

financial institutions, employees, governments, unions, board- members, citizens,

volunteers, NGOs and many more groups or individual or organization can be a

stakeholder of a company. Stakeholders can be different for a government, for a

company or for a NGO but the relationship with the stakeholders is attached with

company’s business. Key to success of company is the key to satisfaction to its

stakeholders.

British Sky Broadcasting Group plc is a UK based company that provides pay

television services and home communication services. Its 174 pay television

services and 300 free channels are provided to the residents of UK and Ireland in

form of SD, HD and 3D through satellite. It also provides telephonic and broadband

services to millions of homes in UK in the brand name of sky. Like any other

organization it also has multiple stakeholders but the important ones are customers,

suppliers, regulatory body, employees and community. Interest of each

stakeholders of BskyB is discussed separately with a discussion that how company

manages their interest with the help of strategies and policies. Stakeholder

information is taken from annual report-2012 from company own website.

CustomersSky broadcasting services reaches more than 10 million homes everyday with a

promise to provide high quality television with numerous choices or channels.

Customers of television services want clear & quality pictures, multiple channels

and paid services in lesser prices. Customers of broadband and telephonic services

need uninterrupted line 24 × 7 in a cheaper rate. To earn the trust of the customer,

BskyB makes the technology simple, controllable and affordable. More than 300

free channels and 174 paid channels are provided with operational efficiency. BskyB

entertains customers with the help of creative ideas and programme of new skill

development in youth in sports, arts and environment. BskyB satisfy its customer by

providing better screen, new & worthy entertainment, easy and accessible content,

suitable progammes, valuable subscription, range of services, easy watching and

expandable communication and entertainment products. During 2012, BskyB added

3 million customers in its 28 million subscriptions base in UK in communication

segment and around 40% of UK household watch sky television and that is called

the achievement of BskyB.

EmployeesThe prime concerns of the employees are ‘salaries in time’, ‘promotion in a period’,

‘bonus at profitability’ and ‘a secure career’. To engage the employees in the

business BskyB does regular external and internal survey to its employees. In this

way, not only employee think about the company but they try to improve

themselves in productivity, business ethics and performance. The employee of

BskyB (around 797) donates fund to charity and their contribution is around 50% of

the amount send by the company as a charity. BskyB has online Development

Studio where around 9000 advisor can access e-learning suite. Employees can

access more than 240,000 e-learning course to improve itself and improve the

workings.

SuppliersThe interest of suppliers is related with the continuity of the business so that they

can sell their products or services to the company. BskyB manages its suppliers

with the help of strong, fair and ethical relationship and continuous improvement in

services. BskyB see whether the suppliers comply all rules and regulation set by

regulatory body. They set “Responsible Sourcing Questionnaire which helps to know

the environmental effect of product and services by the suppliers and its helps the

suppliers to reduce these.

CommunityThe community is directly or indirectly associated with the company. They get job

environment for local people, money-flow in local market and improvement in living

standard due to change in society. BskyB supports local community by providing

career opportunity to young local people through skills development. BskyB works

with partner ‘Sports Inspired’ to bring community in events organized by the

company like sports. During 2012, the company helped 2000 school students in

sports events with the help of 400 sky volunteers.

ShareholdersThey are interest to know how much profit company is making every quarter.

Growth of the company in term of revenue and positive profitability add value to the

share prices means adding value to shareholders’ money. During 2012, BskyB

proposes a dividend of 25.4 pence per share with an increase of 8% from the

previous year. The company also returned £750 million through share-buyback offer

to the shareholders in year 2012.

LendersBanks and other financial institution lend money to the company to get benefit in

term of interest. Their interest lies on the profitability and growth of the company so

that the company would be able to pay the interest. BskyB has taken £750 million

Revolving Credit Facility from 10 syndicated banks during 2012 and it has been

used to return shareholder money in shares buyback process. The company

maintained Net debt to EBITDA ratio to 3:1 ratio. On the other hand company

deposit cash and cash equivalent in Banks. Total cash and cash equivalent including

short-term deposit of BskyB was £1,174 million in year 2012. In this manner

company lend the money to finance operational activity and deposit the surplus in

Banks.

Conclusion

BskyB relationship with its different stakeholders is different and it has the ability to

deal differently to manage their interest and company’s interest as well. The

satisfaction of each stakeholder is as important as the satisfaction of owner and

BskyB has done it superbly.

Component 2

Financial & Business Position: BskyB

In this component 2, the financial and business position of BskyB has been

described. This segment shows more clearly and broadly the way the company

utilizes its financial and other resources. Horizontal analysis, vertical analysis and

ratio analysis is the best process to get stretching view of key financials of BskyB.

On the other hand business position and business strategy is judged on the basis of

past and current happenings.

Business PositionBy the year of 2012, 40% of UK household uses sky television and its telephonic

services where the total subscription base is 28 million. It was incorporated in 1988

and now it has millions of customers in 25 years. 3 million is added only in the year

2012 due to provision of multi-product plan of BskyB. This transition changed the

total product size double from the year 2008. The company has 174 pay channels in

which 29 are sky channels and 145 are distributed channels (Bloomberg

Businessweek). The company has also remarked that it provides more than 300 free

air television channels and radio channels. BskyB also give wi-fi services from the

same cable used in television and telephone to the UK and Ireland households.

Apart from households, its business is associated with commercial television

customers, hotels, retail outlets, clubs and pubs. The technology used in

transmission of pay television channels is SD, HD and 3D technology and it is

transmitted with the help of satellite. Telephone line is connected with broadband a

facility which also contributes in sales of BskyB. Advertising and sponsorship in

channels, online advertising through broadband, mobile advertising, advertising in

video & movies on demand, green-button advertising and advertising sales

representatives are other means of income of BskyB. It also engages in distribution

of channels to other operators, game facilities in internet, interactive television (sky

vegas, sky bingo, sky poker), online sports media brands and development of set-

top boxes.

Financial PositionFinancial position of BskyB is reviewed on the basis of ratio analysis, horizontal

analysis and vertical analysis. Horizontal and vertical analysis captured recent trend

in income and balance sheet statement. Income and financial statement is

extracted from company’s financial published in year 2012 and 2011 (Annual

report-2012, Annual report-2011: BskyB)

Horizontal Analysis of Income Statement

Income statement of BskyB reflects that revenue growth during 2012 is less than

2011. Revenue has grown by 2.9% only during 2012 to £6791 million. The growth in

operating profit

Horizontal Analysis

12 month

to 30 June201

2Change over

2011

12 month to

30 June 2011

Change over 2010

12 month

to 30 June201

0

£mAmoun

t%

age £mAmoun

t%

age £m

Income Statement

Total Revenue 6,791 194 2.9% 6,597 88815.6

% 5,709Operating Expenses 5,548 24 0.4% 5,524 659

13.5% 4,865

Operating Profit 1,243 170 15.8% 1,073 229

27.1% 844

Net Profit 906 96 11.9% 810 -68 -7.7% 878

from the previous year also went down from 27% to 16% but net profit variation

increased from -7% to 12%.

Horizontal Analysis of Balance Sheet

Change in current asset over a year in 2012 is -2.3% whereas it was 17.3% in 2011

and it is because of cash outflow in share buyback offer during 2012. Non-current

liabilities have increased by £60 million because of increase in non-current

borrowings by £73 million.

Horizontal Analysis

12 month

to 30 June201

2Change over

2011

12 month

to 30 June 2011

Change over 2010

12 month

to 30 June201

0

£mAmoun

t%

age £mAmoun

t%

age £m

Current Assets 2275 -54-

2.3% 2329 343 17.3% 1986Non-Current Assets 3234 209 6.9% 3025 207 7.3% 2818Current Liabilities 2098 186 9.7% 1912 205 12.0% 1707Non-Current Liabilities 2467 60 2.5% 2407 -130 -5.1% 2537

Equity 944 -91-

8.8% 1035 475-

84.8% 560

Equity portion has decrease due to share-buyback activity by the company. Non-

current increased by 6.9% is due to expansion plan where towers and other

machines are installed.

Vertical analysis of Income Sheet

Vertical analysis reveals that BskyB has cut its operating expenses against revenue

in 2012 against 2011. Operating profit is 18% of revenue during 2010 which was

16.3% growth in 2011. Good operating and net profit is due to increase in

subscription revenue and cost cutting drill during 2012.

Vertical Analysis

12 month

to 30 June201

2 % of

12 month to

30 June 2011 % of

12 month

to 30 June201

0 % of

£mRevenu

e £mRevenu

e £mRevenu

e

Income Statement

Total Revenue 6,791 100% 6,597 100% 5,709 100%Operating Expenses 5,548 82% 5,524 83.7% 4,865 85.2%Operating Profit 1,243 18% 1,073 16.3% 844 14.8%

Net Profit 906 13% 810 12.3% 878 15.4%

Vertical analysis of Balance Sheet

Vertical analysis tells us that current asset went down in % of revenue due to cash

outflow in share-buyback and non-current asset increased from 45% to 48% due to

infrastructural development for new subscription. Equity size is just 14% of revenue

in 2012 which was 15.7% during 2011.

Vertical Analysis

12 month to 30

June2012 % of

12 month to 30 June

2011 % of

12 month to 30

June2010 % of

£mRevenu

e £mRevenu

e £mRevenu

e

Balance Sheet

Current Assets 2275 34% 2329 35.3% 1986 34.8%Non-Current Assets 3234 48% 3025 45.9% 2818 49.4%Current Liabilities 2098 31% 1912 29.0% 1707 29.9%Non-Current Liabilities 2467 36% 2407 36.5% 2537 44.4%Equity 944 14% 1035 15.7% 560 9.8%

Ratio analysis

Profitability ratio (Operating profit margin, net profit margin), liquidity ratio (current

ratio & quick ratio), leverage ratio (debt-equity ratio), activity ratio (creditor

collection period, debtor collection period and stock turnover) and investment ratio

(Return on equity) has been calculated in this segment for recent three year from

2010 to 2012. BskyB financial data is extracted from company’s financial published

in year 2012 and 2011 (Annual report-2012, Annual report-2011: BskyB) and

Industry data is taken from Reuters:UK website.

Operating profit margin

It shows how a company runs its operation to earn profit after cutting all the

operating expenses (Groppelli and Nikhbakht, p-467, 2006). Operating profit should

be consistent and positive for any company to stand itself in the market.

Year ended 30th June2012 2011 2010 Industry

£m £m £m £m

Revenue 6,791 6,597 5,709

Operating Expenses 5,548 5,524 4,865

Operating Profit 1,243 1,073 844

Operating Profit Margin 18.3% 16.3% 14.8% 5.8%

The BskyB’s operating profit increased from £1073 million in 2011 to £1,243 million

in 2012 and the reason of this 18.3% growth was growth in subscription revenue

and cost cut in operating expenses. Table shows that operating margin grow

substantially from 14.8% to 18.3% in three years.

Net profit margin

Net profitability is the amount of profit rest after deducting all the expenses

including interest, depreciation, tax and amortization (Brown, p-209, 2000). Net

profitability is very important because that is the money attributed to the common

shareholders. Higher the net profit, higher the value of share increases.

Year ended 30th June

2012 2011 2010 Industry

£m £m £m £m

Revenue 6,791 6,597 5,709

Net Profit 906 810 878

Net Profit Margin 13.3% 12.3% 15.4% -0.67%

BskyB net profit margin in year 2012 was 13.3%, a increase of 1% from 2011 and

fall of 2% from 2010. Net profit in current year was £906 million which contributed

earnings per share of 50.8 pence. Industry average was not quite satisfactory

because it shows negative net profit margin. Thus BskyB has beaten the market

with its good performance in term of profitability.

Current ratio

Current ratio tells us how much current asset a company has against its current

liabilities. If it lies above 1 it means company has enough money to pay the

liabilities instantly (Dickie, p-96, 2006).


2012 2011 2010Industr

y

£m £m £m £m

Current Asset 2275 2329 1986

Current Liabilities 2098 1912 1707

Current ratio 1.08 1.22 1.16 0.72Current asset of BskyB has decreased by 54 million and it decreases the current

ratio during 2012. Decrease in cash and cash equivalent by 177 million due to share

buyback during 2012 is the cause of decrease in current ratio from the previous

year value of 1.22. Still company’s current asset positive is way better than industry

average of 0.72 which means that company has enough liquid asset to pay current

liabilities.

Quick ratio

Quick ratio is quick asset divided by current liabilities. Quick asset is the most liquid

asset of the company which is calculated after deducting inventory from the current

asset (Mayo, p-279, 2010). Quick ratio near to one is judged a good capability of the

firm to have most liquid asset to pay working capital requirement.


2012 2011 2010Industr

y

£m £m £m £m

Current Asset X 2275 2329 1986

Inventory Y 456 375 343

Quick Asset X - Y 1819 1954 1643

Current Liabilities 2098 1912 1707

Quick ratio 0.87 1.02 0.96 0.59 Quick ratio went down from 1.02 to 0.87 due to increase in inventory and decrease

in current asset due to cash outflow in share buyback offers to its shareholders.

0.87 quick ratio is way better than industry average of 0.59 and it is near to one

which means company’s most liquid asset position is well enough to fight with

current liabilities if claimed.

Debt-Equity Ratio

It calculates the proportion of debt in mean of financing against equity because

company constructs its capital using above two ways only (Smart & Magginson, p-

53, 2008). Debt equity ratio tells us the burden of interest and dividend in the

company. Interest has to be paid without wished and dividends are paid with wishes

to value share prices.


2012 2011 2010Industry

£m £m £m £mEquity 944 1035 560Debt (Long-Term) 2398 2325 2450Debt-Equity Ratio 2.54 2.25 4.38 1.23

Non-current borrowing has been increased by 73 million and around 100 million of

equity was purchased as a buyback policy and due to it the debt-equity ratio has

been increased from 2.25 to 2.54. During 2010 it was 4.38 which were restructured

after issuing new IPO in public and during 2012 the reverse decision has been taken

by the management. Greater debt proportion carries interest with itself and

increase in debt-equity ratio had increased the interest amount of the company that

has to be paid to the lenders (Banks).

Creditor’s collection Period

Suppliers of a company sell their products or services to the company in credit and

company pays that credit amount in certain period of time and that time-period is

called creditors collection period (Periasamy, p-448, 2009). Greater the creditor

collection period better for the company to use creditor’s money as a cheap mean

of financing its working requirement.


2012 2011 2010 Industry

£m £m £m £m

Trade Payables 1855 1675 1526

Revenue 6,791 6,597 5,709Trade Creditors Collection Period (In Days) 100 93 98 NA

The supplier of BskyB had given 100 days during 2012 to pay the bill which wa 93

days in 2011 and 98 days in 2010. It means suppliers become more liberal towards

the company in the recent year and it happens when supplier feels that it would get

the payment for sure from the company.

Debtor’s collection Period

BskyB supply their services to the customer and between them there is called

channel partner. Now company provide the services in credit which it has to receive

after a certain period of time and that time period is called Debtor’s collection

period (Dooley, p-34, 2006). Shorter the debtor collection period is, better for the

company to recycle the money collected from customer into production.


2012 2011 2010 Industry

£m £m £m £m

Trade Receivables 621 592 538

Revenue 6,791 6,597 5,709Trade Debtors Collection Period (In Days) 33 33 34 149

The customer of BskyB paid the bill in 33 days in last two years which was 34 days

during 2010. Industry average is around 149 days which is too long and thus

company has beaten its own performance from 2010 and from the industry as well

in collecting the payment from the customer which was given to the customer as a

credit.

Stock Turnover Period

It is the time period a company spends to keep the inventory or stock. It is

calculated against cost of sales or operating expenses because keeping inventory

means keeping cost of company as a product or services in inventory (Stickney et al

p-252, 2009).


2012 2011 2010 Industry

£m £m £m £m

Operating Expenses 5,548 5,524 4,865

Inventory 456 375 343

Stock Turnover 30 25 26 25BskyB kept the inventory for 30 days during 2012 higher than 2011 where it was

only 25 days. Industry average is also 25 days, lesser than BskBy. It means keeping

the product in 30 days in inventory incur cost for the company and an improvement

is required.

Return on Equity (ROE)

Profit in respect to total equity of the company is called return on equity

(ROI(Morrel, p-59, 2007) . Good ROE add value to the shareholder’s money and it is

very important factor in the capital market.

Year ended 30th June 2012 2011 2010Industr

y

£m £m £m £m

Net Profit 906 810 878

Equity 944 1035 560

Return on Equity 96.0% 78.3% 156.8% 3.26%

BskyB’s return on equity increased from 78.3% to 96% but lower than 2010 average

of 156%. When it is compared with industry average ROE of 3.26% then it can be

said that company has done remarkably well in the recent year.

Conclusion

The company BskyB has done very good in 2012 in generating revenue,

maintaining operating profit, maintaining liquidity, handling activity in collecting

payment and return on equity. This is because of contribution of management team

and other employees who helped the organization to increase the subscription base

and to decrease the cost per subscription. Company new capital structure policies

also helped the company to get better viability in the market and competition

against other players in the market.

Component 3

Investment Appraisal Technique: 123 LTD

Component 3 combined all kind of investment appraisal techniques required by 123

LTD to set up its manufacturing unit in one of three countries in option – USA,

France and Switzerland. Running expenses, expected revenue, license fees,

approval fees, residual amount and spot rate required in each country for a plant is

given in Appendix-X. Cash outflow and inflow is also calculated in Appendix-X.

Before putting figures into different investment appraisal techniques, the theoretical

part is covered to understand the calculation, advantage and disadvantage. This

component covers two investment appraisal techniques namely – accounting rate of

return (ARR) and net present value (NPV).

Any investment needs some motives. Few investments is done for expansion of

business, few are done for expansion of staff, few are done to buy fixed assets and

many more reasons are there for investment. Investment appraisal technique is the

way to judge whether the investment going to make has some worth in future or

give some return in future or not and we do it with the help of financial data

available(Schuster, p-3, . Main financial data of any investment is how much

investment is required and how much income we are expecting from that

investment and the difference of the two is called profit or loss of the project. Few

investor uses time value of money to calculate above financials and it is done by

discounting with the interest rate we are losing against investment in some project

which is called opportunity cost of capital. Different investment appraisal uses

different method to calculate financials and return and that would be seen in the

later part with an example of 123 LTD.

Accounting Rate of Return (ARR)

Accounting rate of return is a non-discounting model which calculates the return in

respect to income (Hansen and Mowen, p-568, 2006). Average Income is calculated

by subtracting average cash flow minus average depreciation.

Average Income Average Cash flow - DepreciationAccounting rate of return = ---------------------------- = --------------------------------------------- Average investment Average investment

Average cash flow is calculated by adding each year’s cash flow till the life of the

project and dividing it by life of the project. Average Investment is the average of

initial investment (cashflow in zero year) and salvage value. Depreciation is

calculated using straight-line method and the method is:

Cost of Machine – Salvage value

Depreciation = -------------------------------------------------

Life of machine

Positive accounting rate of return (ARR) is good for any investment and when two or

more projects are compared with the help of ARR then the project having highest

ARR value has to be chosen for investment or project.

Calculation: ARRARR for each of three case has been examined and the calculation of cash flow is

done in appendix-X which covers all the expenses and income of 123 LTD.

Following is the calculation of ARR:

Case-1: Country-USA

Average Cashflow = Expected cashflow of 123 LTD in 5 year of life cycle.

Cashflow in year 1 + Cashflow in year 2 + Cashflow in year 3 +

Cashflow in year 4 + Cash flow in year 5 – Salvage value (SV)

= ---------------------------------------------------------------------------------

5

(Note: cash flow is calculated in Appendix-X where SV is added and

that’s why it is subtracted in actual cashflow)

£101,333 + £86,182 + £72,348 + £101,333 + £321,111 – £220,000 = ----------------------------------------------------------------------------------- 5

£462,307 = ----------------- = £92,461 5

Purchased value of Machine – Residual value

Average Depreciation = -------------------------------------------------------------

Life of Machine

£340,000 - £220,000

= -----------------------------------------

5 Years

£120,000

= --------------------------- = £24,000

5 Years

Initial outlet (Cashflow in 0 year) + Salvage Value

Average Investment = --------------------------------------------------------------

2

£362,000 + £220,000

= ----------------------------------------

2

£582,000

= ---------------------------------------- = £291,000

2

£92,461 - £24,000 £68461

Thus ARR in case of USA = ------------------------------ = ------------ = 23.52%

£291,000 £291,000

Case-2: Country-France




= ---------------------------------------------------------------------------------

5



£35,000 + £21,842 + £10,000 - £714 + £260,769 – £220,000 = ----------------------------------------------------------------------------------- 5

£106,897

= ----------------- = £21,379 5



Life of Machine

£340,000 - £220,000

= -----------------------------------------

5 Years

£120,000

= --------------------------- = £24,000

5 Years



2

£390,000 + £220,000

= ----------------------------------------

2

£610,000

= ---------------------------------------- = £305,000

2

£21,379 - £24,000 -£2621

Thus ARR in case of France = ------------------------------ = ------------ = -0.85%

£305,000 £305,000

Case-3: Country-Switzerland




= ---------------------------------------------------------------------------------

5



£150,000 + £86,667 - £28,571 + £86,667 + £312,308 – £220,000 = ----------------------------------------------------------------------------------- 5

£387,070 = ----------------- = £77,414 5



Life of Machine

£340,000 - £220,000

= -----------------------------------------

5 Years

£120,000

= --------------------------- = £24,000

5 Years



2

£370,000 + £220,000

= ----------------------------------------

2

£590,000

= ---------------------------------------- = £295,000

2

£77,414 - £24,000 £53414

Thus ARR in case of Switzerland = ------------------------------ = ------------ =

18.11%

£295,000 £295,000

Net Present Value (NPV)

Net present value is the sum of all present value of future cash flow starting from

beginning of investment. In the beginning, company does investment which is

counted as cash outflow. Later on the revenue comes which is counted as cash

inflow. To run the operation company incur cost which is operating expenses which

is also a cash outflow. The difference of revenue and expenses is called net cash

flow. It can be negative or positive depending how much revenue a company is

generating after incurring expenses. Present value is calculated by discounting

cashflow using interest rate. It is calculated as (Needles et al, p-1162, 2010):

NPV = CF0 + CF1

+ CF2

+………

+ CFn

(1+r)1

(1+r)2

(1+r)n

Where CF = cash flow in year 0, 1, 2…up to n. and r= discounted rate (Interest rate)

NPV is used differently by investors. If there is single project then investor checks

whether the NPV of the project is positive or not. If there are multiple projects then

investor checks- which project has given maximum NPV value and that would be

selected for particular investment.

Calculation of NPVNPV is calculated for each case and the interest rate is taken as a discounting rate.

Cashflow is already calculated in Appendix-X. NPV is represented in tables because

of simple understanding.

NPV in case USA

Interest rate = 10% which is treated as discounting rate for calculate present value.

Cash flow in £ Present ValuePresent

Value

YearCash Flow of 1£@ 10% of Cash flow

0(362,00

0) 1.000 (362,000)1 101,333 0.909 92,1212 86,182 0.826 71,2253 72,348 0.751 54,3564 101,333 0.683 69,2125 321,111 0.621 199,385

( Sum of PV of all cashflow) = NPV = 124,299

(Note: Cash flow is calculated in Appendix-A)

NPV in case of France


Cash flow in £ Present Value Present Value


0(390,00

0) 1.000 (390,000)1 35,000 0.909 31,8182 21,842 0.826 18,0513 10,000 0.751 7,5134 (714) 0.683 (488)5 260,769 0.621 161,917( Sum of PV of all cashflow) =

NPV = (171,188)(Note: Cash flow is calculated in Appendix-A)

NPV in case of Switzerland


Cash flow in £ Present Value Present Value


0(370,00

0) 1.000 (370,000)1 150,000 0.909 136,3642 86,667 0.826 71,6253 (28,571) 0.751 (21,466)4 86,667 0.683 59,1945 312,308 0.621 193,919( Sum of PV of all cashflow) =

NPV = 69,636(Note: Cash flow is calculated in Appendix-A)

Conclusion

In both finding of ARR and NPV, it is found that USA is the best option for an

investment if 123 LTD wants to set up a manufacturing unit. ARR in case of USA is

23.52% which is highest in all three cases.

County ARR NPV

USA 23.52 £124,299

%

France -0.85% £-171,188Switzerland

18.11% £69,636

NPV of the investment in USA is also highest with a value of 124,299. Above table

was the findings and it is clearly seen that 123 LTD has to choose USA to set up its

plant.

Appendix-X

Country : USA Current Interest rate = 10%Expected Revenue

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Cash Inflow Expected Revenue$700,00

0$700,00

0$700,00

0$700,00

0$700,00

0Spot rate against USD 2.10 2.20 2.30 2.10 2.25Expected Revenue in £

£333,333

£318,182

£304,348

£333,333

£311,111

Cash Outflow Cost of Machine in £

(340,000)

Running Expense(210,00

0)(210,00

0)(210,00

0)(210,00

0)(210,00

0)Approval Fee (22,000) (22,000) (22,000) (22,000) (22,000) 0

Residual Value£220,00

0

Net Cash Flow(362,00

0) 101,333 86,182 72,348 101,333 321,111

Country : France Current Interest rate = 10%Expected Revenue

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Cash Inflow Expected Revenue€

450,000€

450,000€

450,000€

450,000€

450,000Spot rate against Euro 1.80 1.90 2.00 2.10 1.95Expected Revenue in £ 250,000 236,842 225,000 214,286 230,769


(340,000)

Running Expense in £

(190,000)

(190,000)

(190,000)

(190,000)

(190,000)

Approval Fee in £ (25,000) (25,000) (25,000) (25,000) (25,000)Royalty fee in £ (25,000)

Residual Value 220,000


0) 35,000 21,842 10,000 (714) 260,769

Option 3 : Switzerland Current Interest rate = 10%Expected Revenue

Option 3 : Switzerland Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Cash InflowExpected Revenue in Swiss Franc

3,800,000

3,800,000

3,800,000

3,800,000

3,800,000

Spot rate against Euro 10.00 12.00 14.00 12.00 13.00Expected Revenue in £ 380,000 316,667 271,429 316,667 292,308


(340,000)

Running Expense in £

(200000)

(200000)

(200000)

(200000)

(200000)

Approval Fee in £ (30000) (30000) (30000) (30000) (30000)Royalty fee in £ (70000)

Residual Value 220,000


0) 150,000 86,667 (28,571) 86,667 312,308

References

Reuters: UK, Financial with Industry average: British sky Broadcasting Group plc [online] accessed on 1st April 2013 from http://uk.reuters.com/business/quotes/financialHighlights?symbol=BSY.L

John M. Bryson (2011), Strategic Planning for Public and Nonprofit Organizations: A Guide to Strengthening and Sustaining Organizational Achievement, 4th Edition, p-48, John Wiley & Sons, USA

Bloomberg Businessweek, Snapshot of British Sky Broadcasting Group [online] accessed on 5th April 2013 from http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=BSY:LN

Annual report-2012, British Sky Broadcasting Group plc Group [online] accessed on 5th April 2013 from http://corporate.sky.com/documents/pdf/publications/2012/sky_annual_report_2012

http://corporate.sky.com/documents/pdf/publications/2012/sky_annual_report_2012

http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=BSY:LN

http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=BSY:LN

Annual report-2011, British Sky Broadcasting Group plc Group [online] accessed on 5th April 2013 from

http://corporate.sky.com/documents/pdf/publications/annual_report_2011

Angelico A. Groppelli, Ehsan Nikbakht (2006), Finance, p-467, 5th Edition, Barron Educational Series, New York

Carolyn M. Brown (2000),The Millionaires' Club: How to Start and Run Your Own Investment Club -- and .Make Your Money Grow, p-209, John Wiley & Sons, USA

Robert B. Dickie (2006), Financial Statement Analysis And Business Valuation for the Practical Lawyer, p-96

Herbert B. Mayo (2010), Investments: An Introduction, p-279, 10th Edition, South –Western Cengage Learning, USA

Don R. Hansen, Maryanne M. Mowen (2006), Management Accounting, p-568, 8th Edition, Thomson Higher Education, USA

William L. Megginson, Scott B. Smart (2010), Introduction to Corporate Finance, p-53, Cengage learning, USA

David Dooley (2006), BTEC National Business, Book 2, p-34,Book-2,Heinemann Education

Peter S. Morrell (2007), Airline finance, 3rd Edition, Ashgate Publishing Ltd, England

Clyde Stickney, Roman Weil, Katherine Schipper, Jennifer Francis (2009), Financial Accounting: An Introduction to Concepts, Methods and Uses, p-252, 13th Edition, South-Western Cengage Learning, USA

Uwe GoĘtze, Deryl Northcott, Peter Schuster (2008), Investment appraisal [electronic resource]: methods and models, p-3, Springer, UK

Belverd E. Needles, Marian Powers, Susan V. Crosson (2010), Financial and Managerial Accounting, p-1163, 9th Edition, South-Western Cengage Learning

http://corporate.sky.com/documents/pdf/publications/annual_report_2011

Date post:	28-Dec-2015
Category:	Documents
Upload:	harprit4u
View:	26 times
Download:	0 times

Sample of Finance Assignmnt

Documents