Managing Financial Resources and Decisions

1. You should write this assignment in a professional report style format, including the following:

 A cover sheet, detailing the Module Name, the date, your name and your STU number
 A contents‟ page showing the various elements and their respective page numbers
 Page numbers and section numbering throughout

2. You MUST underpin your analysis and evaluation of the key issues with appropriate and wide ranging academic research and ensure this is referenced using the Harvard system.

3. You should use diagrams and tables of figures where appropriate ensuring to reference their source using the Harvard Referencing method.

4. It is advised that you write your assignment within approximately 3,500 words

Work below

You are the Finance Director for a relatively new company, Vista Palace Ltd. The company has been in existence and trading as a Limited company for the last three years. Business has been going well, and they have begun to achieve a decent market share. The company now feels that the time is right to take the next step and try to grow the business further. Their initial idea is to develop a retail outlet; they have the required contacts, but do not have a suitable retail space. With this in mind they have tasked you with the objectives of:

1. Sourcing £1m additional finance;

2. Analysing the case for the proposed capital expenditure (new retail space);

3. And in light of their performance to date, analysing the impact of the decisions above on the company‟s future financial performance
These three elements are considered in the tasks outlined next. Work through each task providing numerical and discursive answers as required. Where appropriate and possible integrate academic source material to support your analyses. When doing so ensure you adopt the Harvard style of referencing.
A series of appendices have been included which will assist you with undertaking the requirements of each task.

Specific tasks are detailed below:

Task Assignment Requirement Tasks link to the following LOs

1a Identify the main benefits of forming a Limited company, as Vista Palace Ltd have done, as opposed to a sole trader or a partnership.

1b Given Vista Palace Ltd’s desire to invest in new retail space, identify the potential sources of finance available to the company? Consider both long term and short term sources of finance, offer definitions, advantages and disadvantages for each of the sources you identify. You should present your answer in a table format.

1c Recommend which source(s) you would suggest using to finance the proposed investment; give brief reasons for your recommendation and discuss how each source would impact on a company’s financial statements.

2a Explain what is meant by weighted average cost of capital (WACC) and given the information in Appendix 3, calculate the WACC of this proposed investment (show your workings).

2b Using the figures provided in Appendix 3, and the WACC calculated in Task 2a, calculate the payback and net present value of the proposed investment.
Based upon these calculations, state what recommendation you would make about the investment and why?  What reservations might you have about how reliable your recommendation is likely to be?

3a Appendix 4 provides a 6 month cash flow forecast for one of Vista Palace Ltd’s existing outlets. Firstly discuss the differences between profit and cash. And then, using Appendix 4, comment on the main trends and messages contained within the cash flow forecast (Appendix 4).

3b Identify different groups who may have an interest in the company’s cash flow statement and discuss the different interests that these different groups may have. Also explain why a company may be profitable but run into problems with its liquidity.

3c Using four financial ratios analyse Vista Palace Ltd’s profitability and liquidity over the three year period (two years of actual results, and one years’ worth of budgeted future results after the capital investment has been undertaken). Use the financial statements given in Appendices 1 and 2.

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