Y Ltd. Y is a large, privately owned supermarket retail group based in the UK. It has a total of 30 stores throughout the UK. The business is family owned and was founded by Gene Cooper who has recently stepped down as chairperson. From 2020 , the business has been run by one of Gene's children, Drinkwater. The company has always been debt averse but there is evidence that the business is being held back by a lack of capital investment, especially in the key areas of online sales and store layouts. As a result, Drinkwater is considering borrowing 200m to fund the cost of developing an online sales division ( Y has no online sales activity at present). The finance director also wants to invest in a new double entry bookkeeping system as the current one has led to misstatements and errors in the financial statements. Drinkwater is not convinced this is an important or beneficial investment. Y is notorious for centralising services and functions, and the company has the highest operating gearing ratio in the sector. Drinkwater wants to continue with this policy and has plans to centralise more retail store functions which will require relocating staff to the head office. Many of these relocated staff will be required to work on the new online sales project. As part of the year 2021 audit, Y's auditors noticed that the organisation's incremental budgeting system required managers to provide very little justification for their budget requests. They also identified significant budgetary slack in Y. Statament of Finanelal Dneitinn 3n3n and on1 2021 Required: a. What is ratio analysis and its importance? (3 marks) b. Calculate appropriate financial ratios covering Y's profitability, liquidity, gearing and efficiency for the years' 2020 and 2021. (20 marks) c. Comment upon the results of your ratio analysis and Y 's operating gearing ratio. (10 marks) d. Identify some of the key advantages for Y should they choose to invest in an effective, automated bookkeeping system. (7 marks) (Total: 40 marks) [LOs: 3,4] As part of the planned expansion into online sales, Y is considering investment in several items of IT hard and software. One such item is a centralised route planning piece of software (for the delivery vans). Drinkwater believes this will lead to increased profitability. There are two possible choices of software that could be selected; the investment information and estimated cashflows for each software package is shown below: Y has a cost of capital of 12%. Each piece of software has a useful life of 4 years. The scrap value will be zero for both. Required: a) Calculate the payback for each software package. b) Calculate the net present value for each software package. (5 marks) c) Explain the term Internal Rate of Return (IRR) (10 marks) d) Advise Y as to which software package should be chosen. (10 marks) (5 marks) e) Explain how the use of FinTech could be beneficially incorporated into the online retail sales project. (10 marks) Draft a briefing note to the chairperson Drinkwater, which: a(i) What is Budgeting? (3 marks) a(ii) What is the difference between Budgeting and Budget? (2 marks) a(iii) Discuss the advantages and disadvantages of the different approaches to budgeting that could be used by Y. (6 marks) a) Identifies and explains the problems that can be caused by organisational slack (budgetary slack). (4 marks) b) Identifies and briefly discusses some of the main sources of debt finance that Y could select to fund the new online retail sales project. (5 marks) (Total: 20 marks) [LOs: 1, 2, 5] Y Ltd. Y is a large, privately owned supermarket retail group based in the UK. It has a total of 30 stores throughout the UK. The business is family owned and was founded by Gene Cooper who has recently stepped down as chairperson. From 2020 , the business has been run by one of Gene's children, Drinkwater. The company has always been debt averse but there is evidence that the business is being held back by a lack of capital investment, especially in the key areas of online sales and store layouts. As a result, Drinkwater is considering borrowing 200m to fund the cost of developing an online sales division ( Y has no online sales activity at present). The finance director also wants to invest in a new double entry bookkeeping system as the current one has led to misstatements and errors in the financial statements. Drinkwater is not convinced this is an important or beneficial investment. Y is notorious for centralising services and functions, and the company has the highest operating gearing ratio in the sector. Drinkwater wants to continue with this policy and has plans to centralise more retail store functions which will require relocating staff to the head office. Many of these relocated staff will be required to work on the new online sales project. As part of the year 2021 audit, Y's auditors noticed that the organisation's incremental budgeting system required managers to provide very little justification for their budget requests. They also identified significant budgetary slack in Y. Statament of Finanelal Dneitinn 3n3n and on1 2021 Required: a. What is ratio analysis and its importance? (3 marks) b. Calculate appropriate financial ratios covering Y's profitability, liquidity, gearing and efficiency for the years' 2020 and 2021. (20 marks) c. Comment upon the results of your ratio analysis and Y 's operating gearing ratio. (10 marks) d. Identify some of the key advantages for Y should they choose to invest in an effective, automated bookkeeping system. (7 marks) (Total: 40 marks) [LOs: 3,4] As part of the planned expansion into online sales, Y is considering investment in several items of IT hard and software. One such item is a centralised route planning piece of software (for the delivery vans). Drinkwater believes this will lead to increased profitability. There are two possible choices of software that could be selected; the investment information and estimated cashflows for each software package is shown below: Y has a cost of capital of 12%. Each piece of software has a useful life of 4 years. The scrap value will be zero for both. Required: a) Calculate the payback for each software package. b) Calculate the net present value for each software package. (5 marks) c) Explain the term Internal Rate of Return (IRR) (10 marks) d) Advise Y as to which software package should be chosen. (10 marks) (5 marks) e) Explain how the use of FinTech could be beneficially incorporated into the online retail sales project. (10 marks) Draft a briefing note to the chairperson Drinkwater, which: a(i) What is Budgeting? (3 marks) a(ii) What is the difference between Budgeting and Budget? (2 marks) a(iii) Discuss the advantages and disadvantages of the different approaches to budgeting that could be used by Y. (6 marks) a) Identifies and explains the problems that can be caused by organisational slack (budgetary slack). (4 marks) b) Identifies and briefly discusses some of the main sources of debt finance that Y could select to fund the new online retail sales project. (5 marks) (Total: 20 marks) [LOs: 1, 2, 5]