Question 1
Required
a. Evaluate each Product using the following:
(i) The Payback Method (8 marks)
(ii) Net Present Value (22 marks)
(iii) Internal Rate of Return (22 marks)
b. Outline which product, if any, should be introduced by Sparkbrook Ltd. In your answer, provide reasons for your choice. (8 marks)
c. Discuss three options that Sparkbrook Ltd could use to raise the money required for this investment. (30 marks)
d. Discuss the advantages and disadvantages of Sparkbrook Ltd using the Payback method and Net Present Value to evaluate projects.
Question Two
a. Explain the role that Corporate Governance plays in today's business environment. Discuss, using an example, some of the key benefits to developing a strong Corporate Governance framework in the business. (35 marks)
b. Explain, using examples from the retail sector, how Corporate Socia Responsibility (CSR) may improve retail business performance. (32 marks)
c. Briefly explain the goals of four different stakeholders in a Corporate Organisation. How might the goals of these stakeholders vary, and how might differences be resolved? (24 marks)
d. Which of the following statements is correct?
The role of a financial intermediary is to:
(i) Report to the Financial Markets on the performance of the Corporate
(ii) Approve the financial accounts of the organisation
(iii) Link lenders of money with borrowers of money
(iv) Link lenders of money with government grant aid schemes
(v) Link ordinary shareholders with preference shareholders and ensure dividends are paid
(vi) Audit the financial accounts of the Corporate
(vii) Report to the Board of Directors on the performance of the Corporate
Question Three
Bournbrook Ltd is considering an investment to expand its production facility. The business expansion will require an investment of €3,600,000 immediately in new plant and machinery.
The new project will have a life cycle of seven years and is forecast to produce a contribution to €975,000 for each of the seven years.
The project will also result in fixed costs that are forecasted to be €280,000 for each of the seven years.
The residual value of the plant and machinery used in the project is expected to have a scrap value of €850,000 at the end of the seven-year lifecycle of the project.
Bournbrook Ltd has a cost of capital of 11%.
Required
a. Calculate the Net Present Value of the project. (34 marks)
b. Calculate the sensitivity of your calculation to the following:
I. The initial investment
II. The contribution per annum
III. The fixed costs per annum
IV. The scrap value of the equipment (32 marks)
c. Discuss the advantages and disadvantages of Bournbrook Ltd using sensitivity analysis to evaluate projects. (12 marks)
