Financial Management Assignment Questions and Answers


Do you seek help with Financial Management Assignment Questions and Answers? Here we provide you with assignment help services by MBA assignment writers. Financial Management Assignment Help at the best price under one roof. We have eminent writers who assist you with 100% plagiarism free work. Get assignment writing services for your complex assignments. Students can also avail of our free assignment samples from our experienced PhD writers.


Financial Management


Ms Nichola, the Investment Manager, has requested some analysis concerning a proposed 5- year investment. The company plans to open a showroom in Leeds and has narrowed its selection down to two locations: (1) Thorpe park and (2) Beeston. You have to evaluate these options based on the following information. Analytic will lease the showroom initially for five years, and the total initial investment cost is estimated to be £20 million each.


Option one: Thorpe Park

It is expected that the Thorpe Park showroom will increase the overall sales revenue of the company by 11% per annum from 2023, and the variable cost will be forty percent of sales revenue. The fixed overhead cost for the initial three years will be £3,500,000, £2,000,000 and £1,500,000, and zero afterwards.


The promotion cost will be £500,000 in the first two years and £200,000 for the next three years. All other operating expenses will be 10% of the total contribution margin. The company will need a working capital investment of £5 million in year two, 80% of which will recover at the end of the project’s life. The company follows a straight- line depreciation method and expects to sell the assets at 10% of historical cost in year 5.


Option two: Beeston

On the other hand, if the showroom is opened at Beeston, then it will require fixed overhead costs for four years £2,500,000 in year one, £2,800,000 in year three, £2,100,000 in year four and £2,100,000 in year five. All other operating costs will be 10% per year of the contribution margin. The working capital investment will be £5,500,000 in year three, and 75% will recover in the last year. The sales revenue will increase by 12% per annum, and variable cost will be 47%. The company will follow a similar depreciation and promotional cost strategy as the Thorpe Park showroom.


Financing the investment

The company has several choices for financing this expansion – issuing new equity or bond or using existing retained earnings. The shares of Analytic are traded in the Alternative Investment Markets (AIM) for £3.5. However, the face value is £1.0, and last year’s dividend was £0.35. HSBC will charge a flotation cost of 9% to issue the new common share in the market. There is a projection that the dividend will grow 5% yearly in the coming years. In addition, the firm can issue an additional long-term bond at an interest rate (before tax) of 8% (i.e., Coupon rate). Similar bonds are selling at £105 in the market, slightly over the face value (£100), with five years of maturity. The market risk premium is 6%, the 3-month UK gilt rate is 4.5% (risk-free rate), and the average Beta of the Electronic goods industry is 1.53.


The company is also planning to issue preferred stocks. The industry average preferred dividend and current market price are £10 and £96, respectively. The company wants to maintain a capital structure of approximately 40% debt, 10% preferred equity and 50% ordinary shares. The current corporate tax rate is 35%.



  1. Determine the Weighted Average Cost of Capital (WACC) for the target capital structure.
    1. Evaluate the showrooms and comment on which one should be selected (Hints: use NPV and IRR). Ms Nichola prefers to use CAPM (i.e., Capital Asset Pricing Model) over DDM (i.e., Dividend Discount Model).
    2. Advise accordingly with appropriate assumptions and rationales for the future.


[Following profit statement is provided for your reference to calculate the net cash benefit by your investment manager Ms Nichola]

(£ million)
Years 2018 2019 2020 2021 2022
£ £ £ £ £
Sales revenue 176.200 190.000 199.110 201.240 201.545
Cost of Sales 28.629 31.294 32.111 32.919 32.382
Gross profit 147.571 158.706 166.999 168.321 169.163
Fixed and semi-variable costs
Fixed overhead 34.283 40.872 42.478 44.014 45.523
Promotion 5.000 6.000 7.000 8.000 9.000
Research and Development 6.000 6.500 7.000 7.500 8.000
Depreciation 31.500 49.400 51.350 53.300 55.250
New model launch 20.000 0.000 0.000 0.000
Professional charges 8.000 8.000 8.000 8.000 8.000
Stock upkeep 0.000 0.362 0.376 0.472 0.504
Total fixed and semi variable 104.783 111.134 116.203 121.286 126.277


Operating profit 42.788 47.572 50.795 47.036 42.887
Interest on loans 15.000 25.000 30.000 30.000 15.000
Profit before tax 27.788 22.572 20.795 17.036 27.887
Tax 9.726 7.900 7.278 5.962 9.760
Profit after tax 18.062 14.672 13.517 11.073 18.126
Dividends 10.000 10.000 10.000 10.000 10.000
Retained earnings 8.062 4.672 3.517 1.073 8.126


For REF… Use: #getanswers2002521