Larch Properties Limited ('LPL') specialises in construction of high-rise city centre office accommodation. It is an unlisted company, in which a venture capital company and an insurance company have small stakes, totalling 15% of the equity share capital. There were several management changes in the company in 2021 and there was a new CEO appointed in July 2021. LPL has been badly impacted in 2021 by a lack of confidence in the city centre office property market following the continuing effects of the Covid-19 pandemic and many people being forced to work from home. All revenue arises in the UK. The Board of Directors believes that revenue is falling due to a lack of consumer confidence and fears of the pandemic impact not abating any time soon. The Board, however, thinks that the company has weathered the storm and the future looks a lot brighter. As a result, the Board plans to invest significantly over the next few months in new city centre land on which to build state-of-the-art office accommodation. The Board of Directors has produced a profit forecast and a cash flow forecast for 2022 that show revenue forecast at 68 million, and more land being purchased after 31 March 2022 using additional bank loan and overdraft facilities. The financial statements for 2021 are as follows:

The current banking facility (all overdraft) is 1.75million and interest at 6% on any of the facility used. In a recent meeting the companys bank, the Board of Directors was informed that the bank will not increase the existing facility without a material increase in the interest rate. The Board of Directors comprises five directors who between them own 70% of the ordinary shares but have no money to invest any more money in 2022 or 2023. The remaining 30% of the ordinary shares are owned by a variety of individuals that have little interest in participating in company operations and are satisfied just to continue to receive dividends at the levels currently being paid. Required: 1. Calculate CPPs estimated profit before taxation for the year to 31 December 2022. Show all workings. (5 marks) 2. Prepare a report for the Board of Directors of CPP advising of actions it may consider to improve the estimated 2022 cash flow and evaluate the impact of these actions on CPPs business. (20 marks 700 maximum word limit)

Income statement for the year to 31 December 2021 m Revenue 77.26 Cost of sales 65.28 Gross profit 11.98 2020 m 82.84 69.20 13.64 Statement of financial position at 31 December 2021 Non-current assets Buildings 0.54 Plant and vehicles 2.34 Investments in joint ventures 2.22 5.10 Operating expenses Administration Sales and marketing Depreciation - plant and vehicles 1.62 0.34 0.32 2.28 1.60 0.40 0.30 2.30 Current assets Inventory (note) Trade receivables Other receivables Cash at bank and in hand 81.28 4.58 1.18 0.50 87.54 Operating profit Interest payable Profit before taxation Taxation Profit after taxation Dividends Retained profit for financial year 9.70 1.40 8.30 2.68 5.62 3.36 2.26 11.34 0.20 11.14 3.12 8.02 3.28 4.74 Total assets 92.64 5381 398) g# #| #| # ## # | g|| | Current liabilities Bank overdraft Trade payables Other payables Taxation payable Dividends payable Non-current liabilities Bank loan Cash flow statement for the year to 31 December 9.02 10.34 5.62 2.96 2.24 30.18 m 2021 Em 9.70 0.32 8.02 8.02 10.02 Total liabilities 38.20 Cash flows from operating activities Operating profit Add back: Depreciation Movements in working capital Increase in inventory Increase in receivables Decrease in payables Cash generated from operations Taxation paid (19.28) (2.44) (9.76) (31.48) (21.46) (2.84) Equity Share capital (1 nominal) Share premium Retained profits Total equity 24.86 11.74 17.84 54.44 Total equity and liabilities 92.64 (24.30) Net cash from operating activities Cash flows from investing activities Sale of buildings Purchase of plant and vehicles Sale of investments in joint ventures 0.10 (1.08) 0.80 Note: Inventory detail Building plots Raw materials Work-in-progress Finished office blocks 2021 m 45.78 1.84 28.04 5.62 81.28 2020 m 40.50 0.06 18.52 2.92 62.00 (0.18) Cash flows from financing activities Issue of ordinary share capital New bank loans Interest paid Dividends paid 3.44 7.52 (1.40) (3.30) 6.26 Net cash movement in the year (1822) 9.70 Cash and cash equivalents at beginning period Cash and cash equivalents at end of period Net cash movement in the year (8.52) (18.22) Income statement for the year to 31 December 2021 m Revenue 77.26 Cost of sales 65.28 Gross profit 11.98 2020 m 82.84 69.20 13.64 Statement of financial position at 31 December 2021 Non-current assets Buildings 0.54 Plant and vehicles 2.34 Investments in joint ventures 2.22 5.10 Operating expenses Administration Sales and marketing Depreciation - plant and vehicles 1.62 0.34 0.32 2.28 1.60 0.40 0.30 2.30 Current assets Inventory (note) Trade receivables Other receivables Cash at bank and in hand 81.28 4.58 1.18 0.50 87.54 Operating profit Interest payable Profit before taxation Taxation Profit after taxation Dividends Retained profit for financial year 9.70 1.40 8.30 2.68 5.62 3.36 2.26 11.34 0.20 11.14 3.12 8.02 3.28 4.74 Total assets 92.64 5381 398) g# #| #| # ## # | g|| | Current liabilities Bank overdraft Trade payables Other payables Taxation payable Dividends payable Non-current liabilities Bank loan Cash flow statement for the year to 31 December 9.02 10.34 5.62 2.96 2.24 30.18 m 2021 Em 9.70 0.32 8.02 8.02 10.02 Total liabilities 38.20 Cash flows from operating activities Operating profit Add back: Depreciation Movements in working capital Increase in inventory Increase in receivables Decrease in payables Cash generated from operations Taxation paid (19.28) (2.44) (9.76) (31.48) (21.46) (2.84) Equity Share capital (1 nominal) Share premium Retained profits Total equity 24.86 11.74 17.84 54.44 Total equity and liabilities 92.64 (24.30) Net cash from operating activities Cash flows from investing activities Sale of buildings Purchase of plant and vehicles Sale of investments in joint ventures 0.10 (1.08) 0.80 Note: Inventory detail Building plots Raw materials Work-in-progress Finished office blocks 2021 m 45.78 1.84 28.04 5.62 81.28 2020 m 40.50 0.06 18.52 2.92 62.00 (0.18) Cash flows from financing activities Issue of ordinary share capital New bank loans Interest paid Dividends paid 3.44 7.52 (1.40) (3.30) 6.26 Net cash movement in the year (1822) 9.70 Cash and cash equivalents at beginning period Cash and cash equivalents at end of period Net cash movement in the year (8.52) (18.22)