1Assessment Brief 7BSP1245 Finance for International Business Module Title:Finance for International BusinessModule Code:7BSP1245Assignment Format &Maximum Word countINDIVIDUAL Report, maximum2,000 wordsAssignmentWeighting:70%Coursework Submission:Time:23.30Date:30th April 2021Method: CanvasCoursework returnDate returned tostudents:May 30th 2021Module leaderArthur DyirakumundaFirst markerArthurDyirakumundaDr NurgulChambers,Dr Edna StanMadukaInternal ModeratorApproved ☐Date: January 2021Module Board namePG Board BExternal ExaminerApproved ☐Date:Module Board date Assessment CriteriaLearning Outcomes: Knowledge and Understanding tested in this assignment:1. evaluate strategies available to an organisation to enable the creation and maintenance of value;2. assess the financing choices available to organisations and the relevance of capital structure;3. analyse the financial and operating risks faced by organizations and the strategies for mitigating theserisks;4. research the specific issues relating investing and raising finance on an international basisLearning Outcomes: Skills and Attributes tested in this assignment:5. analyse financial statements and interpret the results in the context of value creation;6. critically evaluate capital investment proposals both domestic and international including estimation ofcomponent and overall capital costs;7. devise strategies for identifying and managing foreign exchange risk and the risks of internationalinvestment;8. devise financial strategies f or enhancing enterprise value.Feedback /Marking criteria for this AssignmentPerformance will be assessed using HBS Grading Criteria and Mark scheme.Guidance for improvement will be given in writing on the Assessment Feedback Form or on the StudyNet FeedbackForm within 4 weeks of submission.For each day or part day up to five days after the published deadline, coursework relating to modules submitted latewill have the numeric grade reduced by 10 grade points until or unless the numeric grade reaches 50 for level 7(PG). If a submission is more than 5 working days after the published deadline, a grade of zero will be awarded.Where the numeric grade awarded for the assessment is less than 50 for level 7, no lateness penalty will be applied; 2 Detailed Brief for Individual/ AssessmentAssignment Title: Investment Appraisal ReportDescription of the assignment:Report testing an evaluation of international business finance decisions 37BSP1245 Finance for International BusinessCoursework BriefWholesome Organic Foods plc. (t0 = 2021)Wholesome Organic Foods was founded in 1980 when the founding family acquired anorganic farm in Kent. Demand for their wholesome organic food mushroomed and thebusiness expanded rapidly in the 1980’s but remained a family business. It was restructuredas a limited company in 1990 and subsequently experienced rapid growth until 2001.In that year the then directors decided that the business had reached the limit ofdevelopment in its present form. Future development required large-scale expansion inorder to compete with the cost base of non-organic food producers, which in turn neededan injection of capital that the Founding family were unable to generate themselves Theconviction that there was much money to be made from “quality organic foods” had beenvindicated but the directors felt that it would be safer to look for other avenues for futuredevelopment.They investigated several possibilities deciding eventually to expand production facilitiesand establish their own packing/distribution system so that their newly ‘branded’ producecould be sold by independent quality food retailers. Upon raising the necessary capital inthe name of Wholesome Organic Foods plc, they embarked upon a to date, successfulventure.As the market grew and to keep abreast of new production technology, the directors agreedto further update the plant and machinery. They financed updating of equipment andpremises by means of issuing debentures.It is now April 2021 and the present directors of Wholesome Organic Foods plc believe thatthe long-term success of the company lies in future diversification and expansion.The newly appointed finance director, agrees with this opinion but insists that the companymust first appraise its own current position and if necessary, make changes to strengthen itsexisting financial situation before embarking on new plans. He is particularly concerned thatthe company should preserve adequate liquidity and finance its assets in a beneficialmanner. Members of the founding family still retain 30% of Wholesome Organic Foodsequity and other long-standing directors own a further 25%; a change of control is unlikelyto be welcome.During the last year, the company has updated production and distribution assets and, inwhat has been a difficult year, has been able to maintain sales and profit growth (seeWholesome Organic Foods plc accounts in Appendix 1). There has been a great deal ofuncertainty about world economic growth and stock markets have been extremely volatile4resulting in the firm’s ordinary shares trading below their level of one year ago although thepreference shares have made some progress, increasing by 15p during the year.Ordinary share dividends have achieved an average growth rate of 5% per annum over thepast five years and this rate is expected to be maintained in the future.The present market prices for Wholesome Organic Foods plc shares and debentures are: £1 Ordinary shares£2, 5% Preference shares7% Debentures 2025£1.85 ex div£2.55 ex div£108.65 ex interest Any new venture would be expected to achieve a return on capital employed in line withthat experienced recently by Wholesome Organic Foods. The finance director favours apayback period of 5 years. Wholesome Organic Foods would therefore need to agree arealistic acquisition price for such a new venture and its future cash flows in order todetermine whether these criteria could be met.Although several investment projects are being considered the main proposal currentlybeing investigated offers an expansion of the “produce” component of the UK firm’sactivities, but with an additional element providing further diversification into the Spanishorganic food retail market. Wholesome Organic Foods finance director has alreadycalculated the trends in the financial ratios of the Bonita Foods SL, an unquoted Spanishcompany, from its unaudited annual accounts (see Appendix 2) and has concluded that theproposal is now worthy of further investigation.Bonita Foods SL is a thriving family-owned venture requiring further capital to expand itsnetwork of organic food shops in Spain. The existing owners feel that the firm’s future lies inestablishing wider European links and the retirement of senior family members, leaving theyounger members active in the management of the firm. They are therefore consideringselling all the shares to a suitable company at the end of 2021. The firm has beenestablished for 45 years and is well respected in business circles. The average age of its fixedtangible assets is 3 years and depreciation is charged at 10% on cost each year.The firm’s nominal share capital is €550,000 and the directors have indicated that theywould require a premium of 100%. As the firm is at present family owned and run, there isno available price/earnings ratio. P/E ratios for the only two publicly owned companies inthe same business sector, Senza Foods SL and Garcia Organic SL, are 12 and 8 timesrespectively. Garcia Organic SL had grown at a similar rate to Bonita Foods SL.The acquisition of Bonita Foods SL retail outlets currently being investigated offers anexpansion of the firm’s activities into exporting, but with an additional element providingfurther diversification for the company. Wholesome Organic Foods finance director hasalready calculated the trends in the Spanish retail sector and has concluded that theproposal is now worthy of further investigation. However, as this is Wholesome Organic5Foods first venture into overseas markets, the directors are concerned about foreignexchange exposure. Wholesome Organic Foods is interested not only in extending the rangeof its produce but particularly in the possibility of diversifying into the retail trade. Whileaware of the existence of many competitors, the directors feel that there is a ready marketin Spain for their established name and product.The finance director has provided an expected profit forecast (under normal weatherconditions-Base Case 1 probability 55%) for the first five years of the Bonita Foods SLproject. The projected figures are, like the UK Company’s, subject to alteration if weatherconditions vary. Sales are expected to be €900k in 2022 and grow at 15% per annum to2026. Total variable costs (of which 40% is labour cost) are expected to be €495k in 2022.Labour costs will increase by 9% per annum and other variable costs by 6% per annum.There will also be fixed costs of €180k in 2022 which will increase by 5% per annum.Under best case scenario probability 30% net cash flows will be 1.15 times base case.Under worst case scenario probability 15% net cash flows will be 0.70 times base caseThe beta of Wholesome Organic Foods plc is believed to be 1.7, the rate of return on 5yr UKgovernment bonds is 0.25% and the FTSE all-share index return for the last year is 5.25%.The corporation tax rate in Spain is 25% and UK corporation tax is currently 21%. Both arepayable at the end of the accounting year in question (you may assume for the purpose ofthis case that accounting profit and taxable profit are identical.)There would be no restriction on the transfer of Profits/cash flows to the UK. It is consideredpossible that, as the Spanish economy develops further, even higher wages than thoseforecasts may be demanded by the workforce.6Required:Evaluate the Bonita Foods SL investment project on behalf of Wholesome Organic Foods plc.Advise the firm on whether it should undertake the project and identify the maximum priceWholesome foods Plc should pay to acquire the Bonita Foods SL. Also, advise the firm onthe potential impact of foreign exchange on the project and evaluate the alternatives forfinancing the purchase.Submission requirements:Your answer should be presented in the form of a report of 2,000 words total (excluding thereference list). You must also submit a working Excel spreadsheet containing yourcalculations.You should use Arial font size 12 and 1.5 line spacing. Exceeding the word count by 10% ormore or deviations from the formatting instructions will attract a penalty of up to 5%. Notsubmitting a working Excel spreadsheet will attract a penalty of 10%The hand-in deadline for submission is 23.30 on 30th April 2021.Submissions up to 24 hours late will attract a 10% penalty for each day up to 5 days late willbe capped at 50%. Reports submitted more than one week late will attract a mark of zero.Referred work submitted late will attract a mark of zero.Submit one electronic copy via Study net as a Word/PDF file.This is an individual assignment and the report submitted should be entirely your own work.This assessment is subject to anonymous marking so do not put your name on any documentyou submit. However, you must put your SRN on each document you submit. The report willbe checked for plagiarism using Turnitin and you should check using the checker on themodule site prior to submitting.7Appendix 1All amounts are in thousands of pounds sterling2020 2019Sales 7844 6780Opening Stock 208 200Production Cost 5460 4760Closing Stock -216 -208Cost of Sales 5451 4752Gross Profit 2393 2028Administration Expenses 631.7 562Selling Expenses 778 7221410 1284Operating Profit 983 744Debenture Interest 60 60Profit Before Tax 923 684Corporation Tax 277 212Profit After Tax 646 472Ordinary Dividend 175 162Preference Dividend 20 20195 182Retained earnings 451 290Fixed Assets (net):Land & Buildings 1078 994Agricultural Machinery 516 400Processing Plant 620 580Vehicles 195 135Office equipment 160 1392569 2248Current Assets:Stocks 216 208Debtors 1176 839Short-term Investments 255 255Bank/Cash 140 1361787 1438Current Liabilities:Trade Creditors 611 470Corporation Tax 277 212Final Dividend 175 1621063 844724 5943293 2842Long-term Liabilities:7% Debentures 2025 500 5002793 2342Shares & reserves£1 ordinary shares 1200 1200£2, 5% Preference shares 200 200Profit & loss 1393 9422793 2342Abridged Trading, Profit & Loss Account for the year ended30th June 2020Balance Sheet at 30th June 2020:Wholesome Organic Foods plc8Appendix 2NB:Bonita Foods SL financial year end is 30th SeptemberAll amounts are in Euros1 Pound Sterling = 1.16EuroDraft Balance Sheet at 30th September 2020:Fixed Assets (net):EuroFreehold Shops 600,000Fixtures & Fittings 160,000Delivery vehicles 70,000Office equipment 20,000850,000 Goodwill50,000Saleable patents72,000 122,000Current Assets:Stocks 44,000Debtors 25,200Bank/cash 30,800100,000Current Liabilities:Trade creditors 22,400Short-term loan 34,000-56,40043,6001,015,600Long-term Liabilities:20% bank loan 160,000855,600Shares & reserves€1shares 550,000Profit & loss account 305,600855,600Bonita Foods SL net profit after tax:Euro2016 82,0002017 101,2002018 103,8002019 108,0002020 114,650The profit for the year2019/20is an estimatebased on the first sixmonths.9Guidance for the preparation of your report.The purpose of this assignment is simply to give you the opportunity to demonstrate thatyou have acquired the knowledge and skills identified in the Module Guide and that you canapply them in a typical business situation.You should approach the task as a business manager dealing with a ‘real’ business andshould:a) Adopt a coherent approach to dealing with the set task with a clearly statedbusiness purpose.b) Identify an appropriate theoretical dimension and consider the implications forpractice.c) Adopt appropriate analytical methods and a critical perspective.d) Refer to empirical work where appropriate.Guidance for the preparation of your report cont’d.Do refer to the assessment criteria given in the Module Guide which gives a general outlineof how marks will be awarded. Further specific advice about how marks will be awarded forthe coursework is given below.Task Specific Assessment Criteria: CourseworkCommunication Skills (Written) – 20 Marks:Marks will be awarded for a) for the physical presentation and layout of your report, b)adopting logical well supported (i.e. using appropriate citations) arguments, c) the extent towhich the report is accurate, brief, concise and clear, d) the standard of English, and, e)compliance with standard Harvard referencing. Equal account will be taken of each element.Knowledge & Understanding – 20 Marks:You should establish a clear business focussed conceptual basis for your report – i.e. youneed to show what you are seeking to achieve and why it is important for managing theFenland Foods plc business (supported using appropriate citations).Synthesis – 20 Marks:From the case data given you should identify the nature of the decision(s) facingWholesome Organic Foods plc and identify appropriate theory to support the approach youadopt and give your reasoning. i.e. which analytical tools are consistent with ‘businessfocussed conceptual basis’ referred to above? (supported using appropriate citations).10Analysis – 20 Marks:Using the case data given, you should apply the analytical methods identified in the previoussection and evaluate the impact on the business in relation to the ‘business focussedconceptual basis’ referred to above.Evaluation – 20 Marks:Conclusions should be arrived at based on your analysis of Wholesome Organic Foods plcissues; i.e. what do the results of your analysis tell you? In your conclusions section youshould summarise the results of your analysis. Your recommendations will be assessed onthe extent to which they are linked to the analysis of Wholesome Organic Foods plc issuesand on the extent to which they are theoretically coherent – i.e. the extent to which theyare consistent with the theoretical/conceptual base you establish.Student Support and Guidance• For further help, contact your module leader in their drop-in hours or by email.• Use the Grading Criteria and Mark Scheme to help improve your work. •Go to CASE workshops, use the CASE website and drop-in hourswww.studynet.herts.ac.uk/go/CASE/ • Academic English for Business support is available through daily drop-ins from theCASE office. See the CASE workshop timetable on the CASE main website page fordetails.• Make full use of Library search to identify relevant academic material and the‘Subject Toolkit for Business’ which contains links to other Information Databasesand the Information Management contact details.(http://www.studynet1.herts.ac.uk/ptl/common/LIS.nsf/lis/4DAF5390094771C2802575ED004212BF)Tutors allow students to test their work using Turnitin. Guidance on submission to Turnitinvia StudyNet can be found by using the following link.http://www.studynet1.herts.ac.uk/ptl/common/asu.nsf/resource+library/TURNITIN+FOR+STUDENTS+2016+USER+GUIDE.pdf/$FILE/TURNITIN+FOR+STUDENTS+2016+USER+GUIDE.pdf
