BPP Coursework Cover Sheet

Please use the table below as your cover sheet for the 1st page of the submission. The sheet
should be before the cover/title page of your submission.
Programme MSc Management with Streams

Module name Financial Decision Making

Schedule Term Spring 2020

Student Reference Number (SRN)

Report/Assignment Title

Date of Submission
(Please attach the confirmation of
any extension received)

Declaration of Original Work:

I hereby declare that I have read and understood BPP’s regulations on plagiarism and that this is my
original work, researched, undertaken, completed and submitted in accordance with the requirements
of BPP School of Business and Technology.

The word count, excluding contents table, bibliography and appendices, is ___ words.

Student Reference Number: Date:

By submitting this coursework you agree to all rules and regulations of BPP regarding
assessments and awards for programmes. Please note, submission is your declaration
you are fit to sit.

BPP University reserves the right to use all submitted work for educational purposes and
may request that work be published for a wider audience.

BPP School of Business and Technology

 MSc Management with Streams

Financial Decision Making

[FIN 7040]

Coursework Assessment Brief

Spring Term 2020

Submission deadline: 23:59hrs 28th April 2020

Submission mode: Turnitin online access

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1. General Assessment Guidance

• Your summative assessment for this module is made up of two elements: this
Coursework submission which accounts for 80% of the marks and an Online Quiz
(MCQs) which accounts for 20% of the marks.
• The deadline for submission of both elements is 23:59 hrs on 28th April 2020. Please
note late submissions will not be marked.
• You are required to submit all elements of your assessment via Turnitin online access.
Only submissions made via the specified mode will be accepted and hard copies or any
other digital form of submissions (like via email or pen drive etc.) will not be accepted.
• For coursework, the submission word limit is 3,500 words. You must comply with the
word count guidelines. You may submit LESS than 3,500 words but not more. Word
Count guidelines can be found on your programme home page and the coursework
submission page.
• Do not put your name or contact details anywhere on your submission. You should
only put your student registration number (SRN) which will ensure your submission is
recognised in the marking process.
• A total of 100 marks are available for this module assessment, and you are required to
achieve minimum 50% to pass this module.
• You are required to use only Harvard Referencing System in your submission. Any
content which is already published by other author(s) and is not referenced will be
considered as a case of plagiarism.
You can find further information on Harvard Referencing in the online library on the VLE.
You can use the following link to access this information:
http://bpp.libguides.com/Home/StudySupport
• BPP University has a strict policy regarding authenticity of assessments. In proven
instances of plagiarism or collusion, severe punishment will be imposed on offenders.
You are advised to read the rules and regulations regarding plagiarism and collusion in
the GARs and MOPP which are available on VLE in the Academic registry section.
• You should include a completed copy of the Assignment Cover sheet. Any submission
without this completed Assignment Cover sheet may be considered invalid and not
marked.

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2. Assessment Brief
2.1. Case Study - ROAST LTD

Your role
You work in the finance department of Starbucks UK. Your Chief Financial Officer (CFO) has
asked you to review the financial statements and other material sourced for you below, of
Roast Ltd, an independent UK chain of coffee houses. The objective is to assist her in
evaluating the attractiveness of the company as a target for acquisition by Starbucks.

Task
Prepare a 3,500 word business report for your CFO providing analysis and business advice to
address the requirements below.

Format: business report with headings, sub-headings and paragraphs 1 mark

Executive summary – key highlights/findings drawn from each task below to answer the
central question: should Starbucks acquire Roast Ltd or not? 5 marks

Note: no introduction or conclusion is required except where stated as part of the

requirements. No marks will be awarded for an introduction or conclusion.

Part 1: Industry Review

Using your own independent research, provide a top-line review (in bullet point format) of
the current UK coffee house industry. This should include a summary of who the key players
are, how well it is performing, and any challenges or opportunities that you find. 5 marks

Part 2: Business Performance Analysis

You will need to calculate and use appropriate ratios in your analysis for the sections
required below:
2.1 Statement of Profit or Loss
Analyse and comment on the financial performance of Roast Ltd using all relevant
information from exhibits 1 and 2. Your analysis should critically evaluate the lines of the
Statement of Profit or Loss. 20 marks

2.2 Statement of Financial Position

Analyse and comment on the financial position of Roast Ltd using all relevant information
from exhibits 1 and 2. Your analysis should critically evaluate the lines of the Statement of
Financial Position. 15 marks

2.3 Statement of Cash Flows

Use the Statement of Cash Flows (exhibit 1) and identify what has happened to the cash
position of Roast Ltd during 2018. 4 marks
Calculate and explain Roast Ltd’s Operating Cash Cycle (OCC) for 2018 and 2017. 3 marks
Critically evaluate the company’s 2018 dividend policy and explain whether you think Roast
Ltd was right not to make a dividend payment in 2018. 3 marks

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Part 3: Investment Appraisal
Critically evaluate the investment appraisal information (exhibit 3).
Your evaluation should challenge the management forecast in the first part of your answer.
Then, in the context of Roast Ltd, critically evaluate the following investment appraisal
techniques considering the benefits and limitations of each technique. You need to give a
clear assessment as to whether the company was right to proceed based on the results of
each appraisal technique and what we now know.
Use the following sub-headings to structure your answer:
3.1.a Management Forecast 5 marks
3.1.b Investment Appraisal Techniques
- Payback period 3 marks
- Accounting Rate Of Return 3 marks
- Net Present Value 3 marks

3.2. Sources of Finance

Given that Roast Ltd is considering a further investment, this time into Italy of £400,000
from 2019, assess the benefits and drawbacks of two alternative sources of finance for this
further investment, including an assessment of their appropriateness in this case. Give a
clear conclusion as to what course of action you recommend. 10 marks

Total 80 marks

The word limit is 3,500 words excluding numerical tables, bibliography and appendices. The
executive summary is included in the word count.

To assist you with this task you have been supplied with the following information:
• Exhibit 1: Extracts from Roast Ltd’s Financial Statements for 2018, including the
Statement of Profit or Loss, Statement of Financial Position, Statement of Cash flows
and Statement of Changes in Equity.
• Exhibit 2: Notes from a meeting between the Loan Officer at Finance Bank and Roast
Ltd’s Chief Financial Officer, Dan Shaw.
• Exhibit 3: Investment Appraisal – Romania expansion figures drawn up in 2016 for
2017 onwards.

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CASE STUDY – ROAST LTD

Roast Ltd is an independent coffee house chain that was established in the UK in 2008. It
has become a well-established part of the popular café culture that has developed alongside
the emergence of the digital age, with workers taking their mobile devices to their local café
to benefit from wifi, a caffeine boost and possibly something to eat, as an alternative
location to their desk.

To face off competition, Roast Ltd has built its brand strength on the fact that it is
independent. Paola King, the chair of the company since their inception, and formidable
driving force behind their success to date, cites their USP as follows: “We offer an
alternative to the big brands: we are all about employing local people, and giving something
back to the high street; our coffee shops are not cookie-cutter duplications of each other,
they all have a certain character depending on their location, and that’s important to us in
this increasingly globalised and corporate world. This is a family business, proud of its Italian
heritage and inspiration: my parents were from Rome, and we use only the best Italian
technology in our coffee machines and follow Italian brewing processes to ensure that every
cup of Roast coffee is on a par with what you’d get in a top Italian caffè.”

It may be smaller in size than its big brand competitors, but that hasn’t limited Roast’s
ambitions, as it is currently in the middle of a two-phase expansion strategy:

• Phase one – which commenced at the start of 2017 was the opening of a chain of coffee
shops in Romania. This has been slow to get going: the launch was initially anticipated
for midway through 2017, but ultimately sales only started in January 2018.

• Phase two – In 2019 Roast Ltd is seeking to use its strong supplier contacts in Italy to
acquire a share in a coffee machine manufacturer for which it needs to secure finance of
a further £400,000.

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Exhibit 1: Extracts from Roast Ltd’s Financial Statement for 2018

Roast Ltd Statement of Profit or Loss for the year ended 31/12/18
2018 2017
£'000 £'000
Revenue 2,534 2,022
Cost of Sales (1,990) (1,505)
Gross Profit 544 517
Other operating income 60 0
Operating Expenses: (477) (466)
Operating Profit/(Loss) 127 51
Finance costs (26) (6)
Profit/(Loss) before Tax 101 45
Income Tax expense (20) (9)
Profit/(Loss) for the period 81 36

Note 1 - Extract of supporting notes for the Statement of Profit or Loss

2018 2017
Operating Expenses £'000 £'000
Employee expenses 227.7 269.9
Directors remuneration 35.1 51.8
Bad Debt charges 7.9 5.3
Utility costs 22.8 26.2
Legal and Professional fees 3.6 28.7
Depreciation charges 31.7 20.9
Store maintenance 72.2 27.6
Distribution costs 29.2 8.9
Marketing & Advertising costs 46.8 26.7
477.0 466.0

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Roast Ltd Statement of Financial Position as at the end of 31/12/18
2018 2017
ASSETS £'000 £'000
Non-current Assets
Property, Plant and Equipment 996 670

Current Assets
Inventories 299 120
Trade and other receivables 148 93
Cash and cash equivalents 0 134
447 347
Total Assets 1,443 1,017

EQUITY AND LIABILITIES

Equity
Share Capital 200 200
Retained Earnings 660 579
Total Equity 860 779

Non-current Liabilities
Long-term borrowings 275 100
275 100
Current Liabilities
Trade payables 235 138
Bank overdraft 73 0
308 138
Total Liabilities 583 238

Total Equity and Liabilities 1,443 1,017

Note 2 - Extract of supporting notes for the Statement of Financial Position

Retained earnings column only Retained Earnings
2018 2017
£'000 £'000
Opening balance 579 573
Profit for the year 81 36
Dividend paid 0 (30)
Closing balance 660 579

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Roast Ltd Statement of Cash Flows for the year ended 31/12/18
2018
Cashflows from operating activities £'000 £'000
Operating Profit 127
Adjustments for:
Depreciation 32
159
(Increase)/Decrease in inventories (179)
(Increase)/Decrease in trade and other receivables (55)
Increase/(Decrease) in trade payables 97
Cash generated from operations 22
Interest paid (26)
Income tax paid (20)
Dividend paid 0
Net cashflow from operating activities (24)

Cashflows from investing activities

Purchase of Property, Plant and Equipment (358)
Net cashflow from investing activities (358)

Cashflows from financing activities

Proceeds from long-term borrowings 175
Net cashflow from financing activities 175

Net increase/(decrease) in cash and cash equivalents (207)

Cash and cash equivalents at the start of year 134
Cash and cash equivalents at the end of year (73)

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Exhibit 2: Notes from a meeting between the Loan Officer at Finance Bank and Roast
Ltd’s Chief Financial Officer, Dan Shaw
Purpose of meeting: to begin to consider whether Finance Bank is willing to finance Roast
Ltd’s second phase of expansion into Italy.

Dan Shaw talked through the company’s latest financial statements set out in Exhibit 1. The
following points were noted:

• 2018 has been a good year for the company, with the increase in revenue indicating that
phase one of the expansion strategy has been successful, despite the delay to the initial
launch that was originally planned for 2017.

• The split of Roast Ltd’s revenue by country is set out below

Revenue Revenue
Country
2018 2017
£'000 £'000
UK 2,184 2,022
Romania 350 0
Total
2,534 2,022
Revenue

• Roast Ltd always prided itself on high quality ingredients, but the increasingly public
scrutiny of supply chains combined with trends for organic and fair-trade coffee beans
have led Roast Ltd to experience a small increase in their product costs, which they have
not been able to pass on to consumers.

• The expansion into Romania required new investment in the properties and equipment
of a chain of coffee houses based there. All legal costs relating to this were completed in
2017.

• Early in 2017, a supplier called Caffè Tostato was accused of stealing and copying a
number of Roast Ltd’s brand designs. This resulted in a lengthy court case during 2017
and lots of media interest. In January 2018 this case was decided in favour of Roast Ltd.
Caffè Tostato was ordered to pay them £25,000 in legal costs and £45,000 in damages.

• Roast Ltd has been focused on cutting costs across the business and the following was
noted:
o The general reduction in the global price of oil in 2017 meant that Roast Ltd was
paying less for their power and heat.
o Roast Ltd outsourced various business support areas, which included payroll,
human resources, finance and customer support teams to an external service
provider.
o This outsourcing resulted in 13 of Roast Ltd’s employees (out of a business
support workforce of 20) being transferred to the external service provider.

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 o The outsourcing exercise did not impact on the company’s production workforce,
only the support functions.
o This outsourcing exercise also resulted in a review of the company’s board
structure and various changes occurring in 2018, which included:
§ Roast Ltd’s previous Marketing and Human Resources director resigned
his post due to ill-health. Rather than replacing him, Roast Ltd’s chair
Paola King has decided to combine the role with her role as chief
executive for no additional salary.
§ In an attempt to make the company leaner and more focussed on
generating shareholder wealth, it was decided not to re-elect or replace
its Non-Executive Director, effectively removing this role from the board’s
structure.

• Roast Ltd’s customer base is almost entirely individual consumers, but it does also
have a branded coffee bar in the offices of a handful of companies. Normal payment
terms for the business customers are 30 days from receipt of goods (when the sales
invoice is provided). However, in 2018, one of Roast Ltd’s main business customers
suffered cash flow difficulties and negotiated an increase in the payment period
from 30 to 90 days.

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Exhibit 3: Investment Appraisal – Romania expansion figures drawn up in 2016 for
2017 onwards
Investment - New Product Lines
Initial Investment £500m
Management Forecast Year 1 Year 2 Year 3 Year 4 Year 5
£'000 £'000 £'000 £'000 £'000
Revenue 300 560 740 900 1,120
Variable costs (240) (448) (592) (720) (896)
Contribution 60 112 148 180 224
Notes: Year 1 = 2017
Contribution represents the cash inflows

Payback Period
Cumulative Cash
Time Cash flow Flow
£'000 £'000
0 (500) (500)
1 60 (440)
2 112 (328)
3 148 (180)
4 180 0
5 224 224
Assuming that the cash flows occur evenly, payback period will be 4 years

Accounting Rate Of Return

ARR = Average annual profit from investment x 100
Average investment
Roast Ltd has a target ARR of 10%
Year Cashflow Notes:
£'000 Ave. Annual Profit = (724 -500)/5 years = £44.8m
1 60 Ave. asset value = 500 / 2 = 250
2 112 ARR = (44.8/250) x 100 = 18%
3 148
4 180
5 224
724

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 Net Present Value
Time Cash flow Discount Present
Factor Value
£'000 5% £'000
0 (500) 1.000 (500)
1 60 0.952 57
2 112 0.907 102
3 148 0.864 128
4 180 0.823 148
5 224 0.784 176
NPV 110
Note: The cost of capital is 5%

End of case study

2.2. Assessment Submission Structure

Executive summary
Part 1: Industry Review
Part 2: Business Performance Analysis
2.1 Statement of Profit or Loss
2.2 Statement of Financial Position
2.3 Statement of Cash Flows
Part 3: Investment Appraisal and Sources of Finance
3.1 Investment Appraisal
• Management Forecast
• Investment appraisal Techniques
• Payback Period
• Accounting Rate of Return
• Net Present Value
3.2 Sources of Finance

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2.3. Assessment Marking Scheme (Student Version)
The assignment is marked out of 80. The following table shows the mark allocation and the
approach required. Your coursework mark is added to the results from your MCQs to give a
total out of 100.
Assignment Part
Format
Executive summary
Part 1: Industry Review
Task 2: Business Performance
Analysis
2.1 Statement of Profit or Loss
2.2 Statement of Financial
Position
2.3 Statement of Cash Flows
Task 3: Investment Appraisal
and sources of finance
3.1 Investment Appraisal
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Mark Approach
1 Business report with headings, sub-headings
and paragraphs
Key highlights / findings from drawn from
5 each task below to answer the question:
should Starbucks acquire Roast Ltd or not?
Using your own independent research,
provide a top-line review (in bullet point
format) of the current UK coffee house
5 industry. This should include a summary of
who the key players are, how well it is
performing, and any challenges or
opportunities that you find.
You will need to calculate and use appropriate
ratios in your analysis for the sections required
below:
Analyse and comment on the financial
20 performance of Roast Ltd (exhibits 1 and 2).
Your analysis should critically evaluate the
lines of the Statement of Profit or Loss.
Analyse and comment on the financial
15 position of Roast Ltd (exhibits 1 and 2). Your
analysis should critically evaluate the lines of
the Statement of Financial Position.
Use the Statement of Cash Flows (exhibit 1) to
identify what has happened to the cash
position of Roast Ltd during 2018.
10 Calculate and explain Roast Ltd’s Operating
Cash Cycle (OCC) for 2018 and 2017. Critically
evaluate the company’s 2018 dividend policy
and explain whether you think Roast Ltd was
right not to make a dividend payment in 2018.
Your evaluation should challenge the
management forecast in the first part of your
answer.
Then, in the context of Roast Ltd, critically
14 evaluate the following investment appraisal
techniques considering the benefits and
limitations of each technique. You need to
give a clear assessment as to whether the
company was right to proceed based on the
 results of each appraisal technique and what
we now know.
3.2 Sources of Finance Given that Roast Ltd is considering a further
investment, this time into Italy of £400,000
from 2019, assess the benefits and drawbacks
10 of two alternative sources of finance for this
further investment, including an assessment
of their appropriateness in this case. Give a
clear conclusion as to what course of action
you recommend.
Total 80

End of brief

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