Resource Allocation and Business Goals

You have been engaged as a management consultant by Scylace plc, a grocery retail chain. You have been asked to evaluate two alternative proposals for a new superstore. You have the option to build the superstore at one of two locations. The cost of building the new superstore and the annual sales revenue and costs are as follows:

	Option A Location A million	Option B Location B million
Cost of New Superstore	30.0	15.0
Residual Value	10.0	5.0
Annual Sales Revenue	10.0	6.0
Annual Cost of Sales	(8.1)	(4.8)
Annual Staff Costs	(0.5)	(0.3)
Other Annual Costs	(0.1)	(0.1)

Depreciation is to be charged on a straight line basis over a period of 50 years, taking account of the residual value.

Question 1

For Option A, calculate the Accounting Rate of Return.

(Enter your answer,assumed to be a percentage, to two decimal places. Example:for a percentage oftwenty five percent you would enter25.00)

Answer:

Question 2

For Option B, calculate the Accounting Rate of Return

(Enter your answer,assumed to be a percentage, to two decimal places. Example:for a percentage oftwenty five percent you would enter25.00)

Answer:

Business Finance

You have been engaged as a management consultant by Scylace plc, a grocery retail chain. You have been asked to evaluatethree alternative proposals financing expansion. The options are:

to issue a bond redeemable in 20 years

to issue a bond redeemable in 50 years

or to issue new shares.

The details of the proposed alternative bonds and their expected market values are as follows:

	20-year bond	50-year bond
Face Value of each bond	100	100
Nominal Interest Rate	3.5%	3.5%
Predicted market price of bond	125	85

Scylace plc has ordinary shares with a nominal value of 1 each listed on the London Stock Exchange.

The market price of 1 Scylace ordinary shares is 400p

Over the last year, Scylace has paid a dividend of 14.00p per share.

The directors are expecting the company to pay dividends of 24.75 per share over the next year and expect dividends to grow at a constant percentage rate for the foreseeable future.

Question 3

If the number of years to redemption is increased for both the 20-year bond and the 50-year bond (giving Scylace plc longer before they have to repay them) and the interest ratesand the yields to redemption are to remainthe same, what will happen to the market prices of the bonds?

Select one:

a. The market prices of both bonds will go up. b. The market price of the 20-year bond will go up but the market price of the 50-year bond will go down. c. The market price of the 20-year bond will go down but the market price of the 50-year bond will go up.

d. The market prices of both bonds will go down.

Question 4

Calculate the predicted yield to redemption on the 50-year bond.

(Enter your answer,assumed to be a percentage, to two decimal places. Example: for 25 per cent, enter 25.00)

Answer:

Question 5

Select the correct formula for calculating dividend yield

Select one:

a. (Dividend + Dividend Growth) / Share Price b. Dividend * Nominal Value * Dividend Growth / Share Price c. (Dividend / Share Price) ^{(1 + Dividend Growth)} d. Dividend per Share/ Share Price

Question 6

Calculate the dividend yield for Scylace plc.

(Enter your answer,assumed to be a percentage, to two decimal places. Example: for 25 per cent enter 25.00)

Answer:

You are considering a takeover ofClark Casc plc. The following figures have been extracted from Helibeb's financial statements for the last year:

	Year Ended September 30th.
	2017 m	2018 m
Sales Income	440	445
Cost of Sales	(280)	(283)
Gross Profit	160	162
Distribution Costs	(22)	(27)
Administration Expenses	(44)	(46)
Operating Profit	94	89
Finance Income	0	0
Finance Costs	(3)	(3)
Net Profit Before Tax	91	86
Taxation	(17)	(16)
Net Profit After Tax	74	70
Dividends	(27)	(27)
Retained Profit	47	43

	As at September 30th.
	2016	2017	2018
	m	m	m
Non-Current Assets	550	551	576
Current Assets	20	63	77
Current Liabilities	(6)	(8)	(10)
Non-Current Liabilities	(91)	(86)	(80)
Shareholders' Equity	473	520	563

Question 7

Select the correct formula for the Return on Capital Employed

Select one:

a.

GrossProfit 2

OpeningShareholders' Equity+ Closing Shareholders' Equity

b.

Net Profit After Tax 2

OpeningShareholders' Equity+ Closing Shareholders' Equity

c.

Net Profit Before Tax 2

Closing Total Assets- Opening Total Assets

d.

Operating Profit 2

Opening Total Assets + Closing Total Assets - Opening Current Liabilities - Closing Current Liabilities

Question 8

Calculate the Return on Capital Employed for Clark Casc plc for 2017

(Enter your answer,assumed to be a percentage, to two decimal places. Example: for 25 per cent, enter 25.00)

Answer:

Question 9

Select the correct formula for the Gross Profit Margin

Select one:

a.

Operating Profit

Sales Income

b.

Gross Profit

Sales Income

c.

Cost of Sales 2

OpeningInventory +Closing Inventory

d.

2x Gross Profit

Opening Equity + Closing Equity

Question 10

Calculate the Gross Profit Margin for Clark Casc plc for 2018

(Enter your answer, assumed to be a percentage,to two decimal places. Example: forfourteen and a half percent, enter 14.50)

Answer: