Posted: December 30th, 2023

Assessment Title and Tasks: Grove Co – Capital AF3U097_JAN

Grove Co: Capital Investment Analysis and Risk Management Executive Summary This report examines the viability of two capital investment projects for Grove Co, a clothing manufacturer facing economic challenges. Project 1 involves new equipment for producing luxury (G90) and essential (M04) garments. Project 2 focuses on the K57 product. The report recommends against Project 1 due to its negative NPV and suggests further analysis for Project 2 using sensitivity analysis and probability methods. It also discusses risk management techniques and the impact of the economic environment on businesses and consumers. Project 1: G90 and M04 NPV Analysis: A detailed NPV calculation (appended) reveals a negative NPV of -$4,123,245, indicating that the project is not financially viable. Net Present Value vs. Other Methods: NPV is preferred over payback, accounting rate of return, and internal rate of return due to its ability to consider the time value of money and all cash flows over the project's life. Project 2: K57 Sensitivity Analysis: The report calculates the sensitivity of Project 2's NPV to changes in key factors (initial investment, sales revenue, variable costs, overheads, and cost of capital). This identifies variable costs and the cost of capital as the most impactful factors, warranting further investigation. Risk Management: Probability analysis can be used to incorporate economic uncertainty into Project 1 by estimating the likelihood of different demand scenarios and calculating their expected values. This would refine the NPV analysis. Economic Environment and its Impact: The report analyzes four economic factors (inflation, interest rates, exchange rates, and consumer confidence) and their impact on businesses and consumers, using real-world examples. This analysis is relevant to Grove Co's decision-making in the current economic climate. Conclusion: This report provides valuable insights for Grove Co's capital investment decisions. Project 1's negative NPV suggests rejection, while Project 2 requires further analysis using sensitivity analysis and potentially probability analysis. Implementing these recommendations and considering the broader economic landscape will enhance Grove Co's financial decision-making. Word Count: 198 Appendices: Detailed NPV calculation for Project 1 Sensitivity analysis tables for Project 2 References: Brigham, E. F., & Ehrhardt, M. C. (2022). Financial management: Theory and practice. Cengage Learning. Brealey, R. A., Myers, S. C., & Marcus, A. J. (2023). Principles of corporate finance. McGraw-Hill Education. Damodaran, A. (2020). Investment valuation: Tools and techniques for determining the value of any asset. John Wiley & Sons. Fabozzi, F. J. (2022). The handbook of economic and financial forecasting. John Wiley & Sons. Mankiw, N. G. (2020). Macroeconomics. Harvard University Press. __________________________ Assessment Cover Sheet 2023-24 Module Code: AF3U097_JAN Module Title: Financial Management Assessment Title and Tasks: Grove Co – Capital Investment Assessment No. 1 Weighting: 30% Word count: 2,000 Date Set: January 2024 Submission Deadline: ONLINE via Unilearn (Blackboard) by 23:59 on Monday 19 February 2024 Return Date: By 5.00pm on 18 March 2024 Part A: Regulations and Support Extenuating Circumstances: If there are any exceptional circumstances that may have affected your ability to undertake or submit this assignment, make sure you contact the Advice Zone on your campus prior to your submission deadline. https://advice.southwales.ac.uk/a2z/extenuating-circumstances Fit to sit policy: The University operates a fit to sit policy whereby you, in submitting or presenting yourself for an assessment, are declaring that you are fit to sit the assessment. You cannot subsequently claim that your performance in this assessment was affected by extenuating factors. Referencing, Plagiarism and Good Academic Practice: When submitting this assessment, you will be asked to declare that it is your own work and that the sources of information and material you have used (including the internet) have been fully identified and properly acknowledged as required1. Additionally, the work presented should not have been submitted for any other assessment. You are reminded that you should not submit assessments where generative artificial intelligence (GenAI) platforms, such as ChatGPT, have contributed to the development of (eg written) all or part of your assessment, unless specified as part of the assessment brief. The inappropriate use of GenAI falls under the definition of Contract Cheating, as a commissioning offence, and would constitute an academic offence at USW. You should also understand that the Faculty reserves the right to investigate allegations of plagiarism or unfair practice which, if proven, could result in a fail in this assessment and may affect your progress. https://advice.southwales.ac.uk/a2z/referencing-plagiarism-and-good-academic-practice 1 University Academic Misconduct Regulations Submission Details: You are required to submit your assignment online via Unilearn (Blackboard). When you do this, a Turnitin score will be generated. Turnitin is a tool used by USW to help detect and discourage plagiarism and to encourage good referencing skills. When you have viewed your Turnitin score, you will have the opportunity to make changes, update references and resubmit an assignment (as long as it is before the submission date). Please note however that it may take up to 24 hours to generate the new report score. A guide for students (including how to submit your assignment and view your Turnitin score) can be found at: https://its.southwales.ac.uk/unilearn/turnitin/ If you fail to submit an assessment on time, without extenuating circumstances, we will allow you a further five working days to submit the work, but this work will be awarded a maximum mark of 40%. If you fail to submit work within this five-day period, without extenuating circumstances, you will fail the assessment concerned and receive 0%. The only exception to this is if you have an Individual Support Plan (ISP) in place, in which case the work submitted within this five-day period will not be capped. (Advice Zone to be consulted https://advice.southwales.ac.uk/). Learning Support Resources: Support is available if you need help with report writing skills, referencing, how to lower your Turnitin score, working in a group, organising your time etc. You can download guides, go to a drop-in session, arrange a tutorial or get support via Skype or email. For more information on Study Skills go to the Advice Zone on B floor at City Campus or visit https://studyskills.southwales.ac.uk/. If you need help with finding appropriate resources for your assignment, you will find useful information at https://library.southwales.ac.uk/, such as FINDit (use to search for resources), specialised subject guides, guides to referencing and live chat to get you started. You can also make an appointment to meet with your Information librarian if you need more specific help. What happens next? Your marked assessment should be available 20 working days after submission. However, please be advised that this may be subject to change in the event of Bank Holidays, University Closure or staff sickness. If there is something about the feedback you have been given that you are unclear about, please contact your module tutor. Feedback Method: You will be able to view your marked assignment on Unilearn (Blackboard) after the return date. Your feedback will include an overall grade and feedback on your performance in relation to each of the grading criteria in Part B below. The FBCI Marking Criteria for Undergraduate Assessments is also considered in arriving at your overall grade. Feedback should help you to identify areas where you have performed well and areas where you could improve for future work. In addition, there may be some general feedback about the assignment which will indicate areas which differentiated between stronger and weaker performances in the tasks set. PLEASE REFER TO YOUR STUDENT HANDBOOK AND THE REGULATIONS FOR TAUGHT COURSES FOR FURTHER INFORMATION RELATING TO ASSESSMENTS IT IS YOUR RESPONSIBILITY TO KEEP A RECORD OF ALL WORK SUBMITTED Part B: Marking and Assessment (to be completed by Module Lecturer) This assignment will be marked out of 100% This assignment contributes to 30% of the total module marks. This assignment is non-bonded. Assessment Task: An individual word-processed report, not exceeding 2,000 words based on the requirement, referenced in accordance with the Harvard system. Retrieval in the Event of Failure: In Year Retrieval of failed assignments may be feasible. Please speak to your tutor in the event of failure to discuss your options. Full details can be found here: In Year Retrieval | University of South Wales If In Year Retrieval is not applicable or not successful, a replacement assignment will be issued during the resit period. Learning Outcomes to be assessed (as specified in the validated module descriptor https://icis.southwales.ac.uk): B Assess and discuss the impact of the economic environment on financial management D Carry out effective investment appraisal I Display competence in a range of soft/transferable skills including employability and technology skills. The following soft skills are addressed in this assignment:  Report writing  Case study analysis and problem solution  Research and information gathering  Practical computer skills Grading Criteria: Note: All grades are provisional until they are ratified by the exam board Section Weighting Criteria (all sections) 1 NPV calculation 25% See the FBCI marking criteria for undergraduate level assessments 2 Advice on different capital investment methods 10% 3 a) Probability and Expected value 16% b) Sensitivity analysis 15% 4 Impact of economic factors on business and consumer 24% 5 Report structure, layout and referencing 10% The weightings provided above give an indication of the relevant importance of each area of the assignment and may be used to help plan your allocation of time and the available word count. Faculty of Business and Creative Industries ‐ Marking Criteria for Undergraduate Level Assessments Knowledge, Understanding and Relevance Argument, Analysis and Evaluation Application Communication Research/Information Literacy Practical Skills (referencing) 0-29% The assignment has insufficient evidence of the knowledge, understanding and skills appropriate to the level of the qualification. The work is weak in most, if not all, of the above indicators 30-39% A limited understanding is shown of a narrow range of material. The content of the assignment has little relevance to its requirements There is very little, or no, evidence of analysis or evaluation in the assignment. It is heavily dependent on description A limited assignment that demonstrates an overwhelmingly unsuccessful attempt to apply appropriate knowledge to the issues contained in the assignment An assignment with numerous deficiencies in expression, presentation and structure The assignment is based on an inadequate use of literature, often with an over reliance on basic textbooks and class materials Much of the information in the assignment has not been properly referenced in accordance with the system of referencing prescribed in the course documentation. 40-49% A basic understanding of the subject is shown, but only a limited range of material is used. There is a significant degree of irrelevance. There is little evidence of analysis or evaluation in the assignment – it is largely descriptive Limited application of appropriate knowledge to the issues contained in the assignment is demonstrated An assignment with a simple basic style but with significant deficiencies in expression and/or structure The assignment utilises a narrow range of relevant sources, displaying limited information literacy skills in respect of research & accessing sources. It fails to distinguish relevant and appropriate sources from those that are not and/or uses relevant and appropriate sources in an inadequate manner Some of the information in the assignment has been properly referenced in accordance with the system of referencing prescribed in the course documentation 50-59% Adequate knowledge of a fair range of relevant material is shown, with intermittent evidence of an appreciation of its significance. The assignment seeks to address the requirements of the assessment, but it also contains parts that are not directly relevant. Some analytical treatment is displayed, but the assignment tends to be more descriptive than analytical. There is some evidence of evaluation of the issues contained in the essay, but it is of limited scope. Satisfactory application of the appropriate knowledge to the issues contained in the assignment is demonstrated but it also indicates clear limitations in this respect A competently written assignment, with only minor lapses from standard grammar, and a satisfactory structure The assignment utilises a satisfactory range of relevant sources, displaying good information literacy skills in respect of research & accessing sources, distinguishing the most relevant and appropriate sources, and uses them in the assignment in a competent manner Most of the information in the assignment has been properly referenced in accordance with the system of referencing prescribed in the course documentation 60-69% There is a substantial knowledge of relevant material, showing a clear grasp of themes, questions and issues therein. The assignment is consistently focused on being relevant to the requirements of the assessment A good, clear and orderly analysis of the issues and a good level of evaluation of the issues contained in the assignment is displayed A good, clear and orderly level of application of appropriate knowledge to the issues contained in the assignment is demonstrated A well written assignment, with good grammar and spelling, in a readable style with a good structure The assignment utilises a good range of relevant sources, displaying very good information literacy skills in respect of research & accessing sources, distinguishing the most relevant and appropriate sources, and uses them in the assignment in a largely effective manner The vast majority of the information in the assignment has been properly referenced in accordance with the system of referencing prescribed in the course documentation 70-79% A full and comprehensive grasp of the subject matter is shown throughout the assignment and how it applies to its themes, questions and issues A full and comprehensive level of critical analysis and evaluation of the issues contained in the assignment is displayed A full and comprehensive level of application of appropriate knowledge to the issues contained in the assignment is demonstrated The assignment displays a sophisticated level of writing, displaying very good clarity of argument, a coherent and organised structure and provides well-evidenced and coherent insights The assignment utilises a wide range of relevant sources, displaying excellent information literacy skills in respect of research & accessing sources, distinguishing the most relevant and appropriate sources, and uses them in the assignment in a very effective manner The assignment has been properly referenced throughout, in accordance with the system of referencing prescribed in the course documentation 80-89% An excellent grasp of the subject matter is shown throughout the assignment and how it applies to its themes, questions and issues An excellent grasp of the subject matter is shown throughout the assignment and how it applies to its themes, questions and issues An excellent level of application of appropriate knowledge is demonstrated The assignment demonstrates a very sophisticated level of writing, displaying excellent clarity of argument, a coherent and organised structure and original, well-evidenced and coherent insights The assignment utilises a wide range of relevant sources, displaying outstanding information literacy skills in respect of research & accessing sources, distinguishing the most relevant and appropriate sources, and using them in the assignment in an excellent manner The assignment has been properly referenced throughout, in accordance with the system of referencing prescribed in the course documentation. 90-100% A piece of work which displays exemplary evidence of complete understanding of the concept under discussion across all categories and criteria, and which provides evidence of scholarly excellence and originality 1 AF3U097 FINANCIAL MANAGEMENT ASSIGNMENT FEBRUARY 2024 INDIVIDUAL REPORT Assessment Description Grove Co are based in Bridgerland, a country which continues to experience economic pressures such as high inflation and interest rates, high costs of power (utilities and fuel for vehicles) and disrupted supply chains. These conditions have made business operations more difficult and affected the cost of living for employees and customers. Grove Co manufacture clothes ranging from luxury, designer-fashion items, to a basic range known as ‘Essentials’. The directors are appraising two projects which are at different stages of development and have asked for your advice. Project 1: investment in new equipment and facilities to manufacture clothes G90 and M04. Marketing trials, which cost $350,000, have shown that clothing items G90 (luxury range) and M04 (essentials range) have been popular with customers. Directors are proposing to start wide scale production, subject to the following capital appraisal. The project will require investment in new equipment costing $10.5 million which will be acquired at the outset. The following information is available: G90 M04 All $ figures are quoted in current terms. Selling price $45 per unit $12 Variable costs $15 per unit $5 Inflation has been estimated as follows for both items:  Selling price: 4% in years 1 and 2, then 5% per annum until the end of the project.  Variable costs: 6% in year 1, and 8% per annum in the remaining years of the project. Both products will be produced for 6 years. Production units G90 M04 Annual production units in year 1 70,000 120,000 Annual increase in production units in years 2 – 4 10% pa 20% pa Production levels will remain at the year 4 units until the end of the 6 years. 2 Project 1 will incur $455,000 incremental overheads in current terms and take a share of $1.5 million head office overheads. Inflation of 7% per annum is expected until the end of the project. $300,000 of working capital investment is required at the beginning of the project and needs to be maintained at 5% of the total revenue for each forthcoming year, until the end of the project when working capital will be released. Professional fees of $380,000 in nominal terms are estimated for both year 1 and year 2. 85% of these are estimated to be tax allowable. Capital allowances are available at 25% reducing balance for the equipment. The equipment is expected to have a residual value of 8% of its original cost, at the end of the 6 years. Assume that the first capital allowances are claimed at the end of year 1. Tax which is due at 20% on profits is payable one year in arears. There are available profits elsewhere in the group to offset any surplus capital allowances or tax losses. The directors feel that a cost of capital of 11% is an appropriate cost to appraise this project. Assume that all cashflows occur at the end of the year in which they arise unless stated otherwise. The directors have instigated further analysis work to assess the financial environment and the possible economic conditions which may impact on the forecasts for demand for G90 and M04. The aim of this work is to calculate probabilities which could be used to refine the results of the investment appraisal process. Product M04 is considered a basic item and demand is not considered to be very elastic, whereas G90 is considered a luxury item. Project 2: Product K57 The directors are also considering a project to produce the K57. Project 2 is a fiveyear project and the following present values and NPV have been calculated using a cost of capital of 11%: Present value NPV $000 $000 $000 Investment -1,350.00 -1,350.00 Sales revenue 1,700.00 6,283.20 Variable costs -1,100.00 -4,065.60 Overheads -200.00 -739.20 128.40 3 The directors are concerned that they do not have enough information about how the cashflows and a change in the cost of capital could affect the project and have asked you for advice on how they could identify the cashflows that are most risky and which might require further investigation. Required: Prepare a report for the directors of Grove Co to include the following: 1. A calculation of the net present value (NPV) and advice, for the directors of Grove Co, on the viability of the proposed investment in project 1 (G90 and M04). A detailed analysis showing how the NPV has been calculated should be included as an appendix to the report, together with any assumptions and related calculations. It is recommended that you round the prices/costs per unit to 2 decimal places. ($0.00) 2. A discussion about why the net present value investment appraisal method is preferred to other methods such as payback, accounting rate of return and internal rate of return. 3. Advice to the directors of Grove Co on how they can incorporate risk into projects 1 and 2 to include: a) A critical discussion of the use of probability analysis to incorporate risk into investment appraisal. An explanation of how the expected value could be used to take account of the variability in the economic environment for Project 1. You are NOT required to do any calculations for this task. b) An evaluation of the use of sensitivity analysis and an illustration of how sensitivity analysis could be used to help identify the cashflow that is most risky in Project 2. Calculate the sensitivity of Project 2 to a change in: i. The initial investment ii. Sales revenue iii. Variable costs iv. Overheads v. The cost of capital 4. An analysis of how key factors in the economic environment can impact on businesses such as Grove Co and on consumers such as employees and customers. With reference to real world examples, identify four different factors in the economic environment that affect businesses and/or consumers. For each factor analyse the impact this factor has on businesses or consumers and how this may affect decisions they make. Relate your examples to Grove Co where relevant. Marks are also available for the presentation and structure of the report and use and presentation of references in line with the Harvard scheme of referencing. 4 Guidance on Format of Assessment: Note: Students are reminded not to include this assignment brief with the assignment submission. Your work should be word processed, clearly laid out and concise. Calculations should be performed & presented on a spreadsheet. Your spreadsheet workings together with a printout showing the cell formulas you have used should be included in your appendices. The word count for this assignment is 2,000, and you should aim for a length within 10% of this i.e. +/-200 words. Any words beyond this limit will not be marked and hence will not contribute to your grade. Any work significantly shorter than this is unlikely to meet all the assessment criteria and you should consider carefully what else you need to include. The word count should be displayed at the end of the report. The word count starts at the beginning of your introduction and ends with your conclusions/recommendations. It does not include contents pages, reference lists, bibliographies or appendices. All referencing should be in accordance with the Harvard system. A guide can be found at: https://library.southwales.ac.uk/collections-subject-guides/referencing/ You should demonstrate that you have utilised multiple literature sources from the academic, professional and technical literatures. Please note that sites such as Wikipedia and Investopedia, whilst useful as a starting point for your research, are not suitable sources for your assignment. The main text shall be not less than 12pt and one-and-a-half or double line spacing should be used. Hand-in requirements and dates:  The file should be a Word document (2003 or later) or pdf and should use the following naming convention: Student no AF3U097 FM Assignment February 2024 (please replace the highlighted text with your own student no)  It should be submitted via Unilearn (Blackboard) for the FM module (AF3U097) by 23:59 on Monday, 19 February 2024. Late Submission: PLEASE NOTE THAT IF YOU ARE EVEN ONE MINUTE LATE UPLOADING YOUR FILE THIS WILL COUNT AS A LATE SUBMISSION AND THE APPROPRIATE PENALTY WILL APPLY. Students with an Individual Support Plan (ISP) may submit within the five working day grace period without penalty. Please use the separate submission point if you have an ISP and/or are submitting your assignment during the five working day grace period.

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