task 1: 500 words, produce a report to the owners of cagoo clothing plc (an imaginary retailer of clothes), which carries out an investment appraisal of a possible project to purchase a new shop in london for 7 million.
the following is relevant: all variables should be estimated and justified.
sources of finance and cost of capital should be considered and those selected should be justified
tax effects should be ignored
sensitivity analysis should be considered
assume the shop will be sold after 10 years
each calculation should have two comments.
task 2: fine feet is a retailer of shoes. the average price for a shoe is sold at 40 and although the sales mix is planned to remain the same, there is a 5% price increase planned from october 2015. sales volume is predicted to be 4,500 units in july, which is expected to rise by 2% in each month from august onwards. All sales proceeds are received in the month of sale.
Inventory on 1 july 2015 is predicted to be 100,000 and fine feet is committed to make the following purchases from suppliers: june 110,000, july 155,000, August 130,000, september 120,000, 0ctober 160,000, november 175,000, December 190,000. suppliers allow one month credit.
The predicted average gross profit margin is 40% for the coming year, even after the planned 5 %sales price rise in october.
electricity costs of 4,000 are paid quarterly in arrears by direct debit out of the bank account. the first payment for 2015 occurred in march 2015.
rent for 12months to the end of june 2016 of 24,000 is payable in july, as is insurance of 9,000 for the year to 30 june 2016.
the business predicts that on 1 july 2015 its bank balance will be 250,000, capital will be 90,000 and its bank loan will be 150,000. this bank loan is being repaid with monthly installments. each month installment is 5000, of which 1000 is interest.
Task 2 requires one to prepare the sales, closing inventory,and cash flow budget for each of the 6months to 31 december 2015.
prepare a budgeted income statement for the whole six months and a budgeted balance sheets as at 31 december 2015. No words just mainly calculations for task 2.
Task 3: Growright is an expanding manufacturing company. the managing director wrongly believes that retained earnings should always be used as the prime source of finance for the company as she believes there is no cost for these funds. the finance manager of the company is finding it difficult to explain why this is not true.
describe the advantages and disadvantages for relying on retained earnings as a source, critically appraise other sources of finance as an alternative to retained earnings.
Task 3 should contain only 600 words.
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