Food Planet PLC which started in 2010 was founded by the chairman Mr Pep. The corporation operates a wholesale service for independent retailers, caterers and businesses and are committed to providing a better service to all of their customers. However, due to an increasing consumer demand for everything from online grocery shopping to more personalized advertising, the rise of technology in the grocery industry is reaching a fever pitch

FINANCIAL MANAGEMENT FOR DECISION MAKING

GLOBAL ON-LINE COURSEWORK ASSIGNMENT
TRIMESTER 2 2020-21
Assignment
Food Planet PLC which started in 2010 was founded by the chairman Mr Pep. The corporation operates a wholesale service for independent retailers, caterers and businesses and are committed to providing a better service to all of their customers. However, due to an increasing consumer demand for everything from online grocery shopping to more personalized advertising, the rise of technology in the grocery industry is reaching a fever pitch. The sales have plummeted due to external competition. The company does not have an online platform and is struggling to cope with the demand of online shopping. Their sales have dropped as less people venture into the shops to buy food. To encourage sales and growth, the company have provided more discounts and offers to customers. Nevertheless, the fall in the company has affected the profitability margins and has had a serious effect on their borrowing capacity and ability to pay back the interest on their debts and decrease in cash flow.
In order to enhance competition and start up the online branch, Mr Pep considers raising finance to expand the online retailing stores and buy products. Given that the firm’s financial positions and the risk entering into new internet market, this has not been without risks both short term and long-term growth as the running online e-retail store will affect financial structure and probability.
Initially, the cash flow coming into the online branch is expected high as customers were intrigued over the range of goods and wholesale prices. There was a high volume of sales and therefore the companies had more liquid assets (cash) then initially anticipated.
After discussing the business online experts in the type of retail grocery business they anticipate that after costs the cash flow coming into the online store will increase the sale by £550,000 a year. The immediate cost necessary to establish the online processing software will cost £4,000 and it can have a useful life of five years. The internet company charges £6,000 for installing a new online network (line) and £1,600 a year for the line. The online delivery is needed a fleet of new delivery vans and the vans cost £250,000. The vans can be financed for 5 years with a 40% down payment. The bank will offer finance for the vans through a loan at 5% compounded monthly with monthly payment of £2,830.69. The company will need to recruit for part time van delivery drivers to carry out the delivery of catering products and it costs £5,000 a year. The vans have a useful life of five years and it depreciates straight line for five year. It assumes that the salvage value on the new vans is equal to 25% of the total cost of vans and that the straight line depreciation method is appropriate to estimate the depreciation expense per year. The annual depreciation expense in the company’s income statement is calculated at 20% of annual depreciation. It should be noted that the company has a 20% tax rate for its profits.
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The van maintenance expense and insurance will cost £3,000 a year. The weighted average cost of capital is calculated at 8%. FoodPlanet has assumed a decrease in sales from the physical grocery shopping if this plan goes ahead due to customers moving from physical groceries to electronic ones. Further, the financial advisor reckons the decrease in sales will amount to £430,000 a year.
The financial advisor believes there will be no significant inflation over the next five years and therefore have not included inflation in the above figures. FoodPlanet has some debt and its shares are not quoted on the stock market. If the proposal was to go ahead then the company would need to raise additional finance. The financial advisor has not recommended which way to go with regards to the choice of financing.
REQUIRED:
Q1: Prepare a schedule of cash flows for the project. Calculate, using the information available, the Net Present Value of the proposal to sell online shopping and run online store. Include in your answer a justification for whether or not you recommend FoodPlanet to go ahead with this proposal.
In this question you are required to critically discuss the effect of the cost of capital on financial decisions.
(25%)
Q2: Calculate the payback period for the proposed project to run online store, if the company has a policy of only accepting projects with payback of less than three years, would this be accepted? Comment on the suitability of the payback method for the new investment and comment how to develop an appropriate payback year for the new project.
(15%)
Q3: Discuss the choice of financing for the project to expand the e-grocery.
In this question you should clearly reference and discuss the general advantages and disadvantages of the financing choices both in management’s interest and in shareholders’ interests.
(25%)
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Q4: Critically review the article below and discuss capital budgeting practices in the UK.
(25%)
Arnold and Hatzopoulos, 2000, The Theory-Practice Gap in Capital Budgeting: Evidence from the United Kingdom, Journal of & Accounting, Vol. 27, pp. 603-626.
Note: the final 10% of the grade will be allocated for presentation, referencing, and word count. You are required to type word count in the report.
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ASSIGNMENT
The assignment for this module should not exceed the stated word limit. Word count includes everything in the main body of the text. However, the word count doesn’t include the list of references and appendices. Academic literature should be properly cited using the APA 6th referencing system and shown in the References.
Guidance Notes for the Assignment
The coursework should be in essay format and must be structured a table of contents, with separate sections and, preferably, headings in relation to each question under investigation.
Your essay should be 3,500 words (±10%) of your own words. You should submit your assignment in Word not PDF. Your essay should be submitted by the due date to the drop box in Moodle.
State the word count at the end – this can be found on the ‘Tools’ tab on the menu bar in word. This word limit will require you to be selective in what you include. More marks are available for your own discussion and observations than for sections taken from books or websites.
Any material that you quote or refer to in your work must be referenced fully giving details of its source, author etc. and use the APA 6th referencing system in the assignments. It is not acceptable to include large sections from such sources and journal articles: the vast majority of the essay should be in your own words.
Font will be Arial 12pt and all line spacing will be at 1.5 lines (except long quotations, diagram sources and the reference list that are single-line spacing).
Assessment Criteria for the Module Assignment
Below we give you a schedule, which is used as the basis for marking your assignment in FMDM. This will help you to judge what you need to do to achieve any given grade range.
F2-F5 a poor assignment, the student has not answered the assignment properly. There may be a number of errors including insufficient explanation of the theory, and a limited ability to interpret the ideas to practical situations.
F1-P1 a weak assignment, the student shows partial understanding of the issues but possibly combined with errors and/or insufficient or unclear explanation
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of the key points. There is limited interpretation of the issues in relation to the real world.
P2 a satisfactory assignment, with most of the key points correctly stated, the student demonstrates an ability to interpret at least some of the issues and makes a reasonable attempt at explaining the theoretical concepts.
P3-P4 a good assignment with minimal errors. Demonstrates an understanding of the key issues and is thorough in its analysis of the issues and theoretical concepts. The student shows some evidence of critical and analytical ability.
P5-D1 a very good assignment which is well written and explained. It will demonstrate a clear understanding of the issues, using a high level of critical and analytical ability.
D2-D5 an excellent assignment, which is sophisticated in its approach while being correct in every particular detail. Extremely high level of critical ability is demonstrated with original thought being evident.