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Mr. Mark Stephens is an Entrepreneur from London who is willing to start up a new venture in New Castle. As the tourism industry is booming and due market potential, he is interested to invest money in tourism industry. Two other investors are also agreed about the business proposal. Company name is registered as a Heavenly Resorts.
Task 01: Understand the sources of finance available to a business
Task 2: Explore the sources of finance available to Heavenly Resorts
After 10 years period of time, Company is registered as public listed company in the London Stock Exchange share market. Following market information’s are given for your evaluation.
2.1. Capital structure of the Heavenly Resorts shows following status at 31/March/2016.
Ordinary share capital GBP 1.00 each 1,000,000
Bank borrowings 15% GBP 500,000.00
Debentures 22% GBP 50.00 each GBP 500,000
Market value per ordinary share GBP 1.50
Dividend per Ordinary Share GBP 00.42
Return on Equity 28% (Rf-15%, Rm-31.25%, SD/Beta 0.8)
Market value per debenture GBP 85.00
Corporation tax rate 30%
Calculate company overall cost of capital or WACC
Analyze the costs associate with each sources of finance for the Heavenly Resortsplc. Your answer should be supported by the cost of capital for each of the above sources and conclusion about WACC.
2.2 Explain the importance of proper financial planning toHeavenly Resorts plc.
2.3 Asses the stakeholders ofHeavenly Resorts plc and their impact to the current business operation.
2.4 Explain the impact of appropriate sources finance (Both capital and cost of capital) identified in task 1.3on the financial statements. You are required to explain how it is recorded in the financial statements with clear formats to justify it.
Task 03: Make a financial decision based on the financial information.
3.1 Prepare a cash flow budget and performance report for a given scenario and recommend the management on the possible remedies available to overcome the cash flow issues and the adverse variances. (Remedies are required to justified)
Heavenly Resorts Plc restaurant transactions are below. The following sales are expected over the next six-month period from May to October.
3.2. Heavenly Resorts is planning to expand their products portfolio in next budget period. Company chief chef is proposing two menus targeting the session.
Golden Syrup pudding
Menu ingredient requirement is given in the first table. Labour cost allocated to each menu is 5 pounds. Fixed cost per menu 2.00 pounds. Budgeted sales menu per month is 1500 menus. Target profit is 1000 pounds per month.
Chicken with avocado
Menu ingredient requirement is given in the second table. Labour cost allocated to each menu is 5 pounds. Fixed per menu 2.00 pounds.
Company is adding 60% gross profit margin for any new menu is developed. General fixed overhead of the hotel per month is 2000 pounds. Budgeted sales menu per month is 800 menus. Target profit is 1000 pounds per month.
Carry out Cost-volume- profit (CVP) analysis for the Heavenly Resortsand explain the outcome of the each figure you calculated to make a decision. Answer should highlight the selling price, cost, breakeven point, margin of safety, C/S ratio and target profit.
|Year||Cash Flow (£)||Discount Factor (5%)||Present Value (£)
(CF x DF)
Task 04: Analysis and evaluate the financial performance of a business.
4.1. Explain the main financial statements prepared by a public quoted company and identify the purpose of each statement.
Students are required to refer an annual report of any listed company in the world and refer your answer to the components of the financial statements. Copies of the financial statements should be attached to the final assignment.
4.2 Explain how financial statements of Heavenly Resorts Plcare differing from financial statements of the following business organization.
4.3 The following is the balance sheet of a partner company of Heavenly Resorts
|Balance Sheet as on 31 March|
|Paid-up equity capital||29.77||29.77||29.8||31.4||31.4|
|Profit or Loss||475.77||512.65||522.2||429.8||508.1|
|Other longterm liabilities||0||0||39.5||90.5||107.2|
|Current liabilities & provisions|
|Other current liabilities||18.98||6.2||9.2||16.5||17.3|
|Gross fixed assets|
|Land & building||65.94||77.87||82.3||222||206.5|
|Plant & machinery||117.87||144.18||183.9||296.3||338.6|
|Furnitures and fittings||27.34||34.66||30.7||47.1||50|
|Other fixed assets||24.93||24.69||45.2||29||41.6|
|Less: cummulative depreciation||20.98||33.52||48.1||113.4||136.1|
|Net fixed assets||215.1||247.88||294||481||500.6|
|Raw materials and stores||27.78||27.94||30.9||65.3||56.1|
|Cash & bank balance||378.66||41.87||5.7||9||37.2|
|Cost of sale||560.22||580.9||600.25||459.2||558.9|