Critically evaluate the benefits and limitations of each of the different investment appraisal techniques

• Module Code: APC314/308

• Module Title: FINANCIAL MANAGEMENT

• ALTERNATIVE ASSESSMENT 2021/22

General Information

Weighting – 100% of the marks for this module

This is an individual assignment limited to 3,000 words (+or- 10%), excluding the reference list, bibliography and any appendices. The word count MUST be shown on the front cover of the assignment. Note: see quality Handbook Ref AQH-F15 Guidance for students on the penalty for exceeding the limit for assessed work.

All of the learning outcomes for the module are being assessed in this assignment. The learning outcomes are shown in the section entitled “Marking Guide”, which is further on in this document.

The University’s policy on cheating collusion and plagiarism will be applied to this piece of work. The assignment has three questions. Only two of the three questions should be answered each question carries the same maximum mark.

Learning outcomes: The assignment covers all module learning outcomes.

Assignment Submission Students are required to submit their coursework through Canvas (Turnitin). Only assessments submitted through Canvas (Turnitin) will be marked. Any other submission including submission to your study centre in hardcopy will be treated as a non‐submission.

THE FRONT COVER OF YOUR ASSIGNMENT MUST SHOW:

• YOUR NAME;

• YOUR STUDENT REGISTRATION NUMBER;

• THE WORD COUNT (excluding the reference list and bibliography and any appendices)

Requirements: Select and attempt any TWO from the following three questions. Each question that is attempted will carry a maximum mark of 50%. 

Assessment guideline: Students should approach this assignment as an academic essay, weighing the arguments for and against each issue, making comment on the literature and drawing logical conclusions. Academic referencing using the Harvard referencing approach is a key requirement of the assignment to demonstrate wider reading and to underpin the discussions, ensuring they have relevant depth. Students are encouraged to be inquisitive and innovative in their approach as to what should be included in this report.

Submission Guidance Your submission will be on your module space on Canvas. Please refer to the ‘General Assessment Guidance’ under the Assignment tab, for detailed instructions on how to submit and how to check for your marks and feedback.

Grading Your mark and feedback will be made available to you electronically once the internal moderation has taken place, which is after 4 weeks from your submission deadline.

Infringement  The University is committed to the universal academic standard, which requires that students must not submit materials which contain someone else`s work without appropriate acknowledgement. By submitting, you confirm that the work you submit is your own and that you have read and understood the guide to academic integrity and academic misconduct.  

QUESTION 1

Bluestone Ltd has provided the following figures for two investment projects, only one of

which may be chosen.

Profit is calculated after deducting straight line depreciation. The business has a cost of capital of 10%.

Required

a) Calculate the payback period, net present value and accounting rate of return for each project, and provide brief recommendations as to what project needs to be chosen based on the following:

1. The Payback Period.

2. The Accounting Rate of Return/Return on Capital Employed.
3. The Net Present Value.

b) Critically evaluate the benefits and limitations of each of the different investment appraisal techniques. 

In this section students should demonstrate understanding, knowledge, and an ability to critically evaluate the differing theoretical viewpoints associated with differing capital appraisal methods. The response should attempt to incorporate a critical perspective through relevant academic referencing, rather than overly describing the differing models.

QUESTION 2

Company P has 4 million shares in issue and Company Q 12 million. On day 1 the market value per share for Company P is £3.50, and for Company Q is £5.00. On day 2, the management of Company Q decides at a private meeting, to make a cash takeover bid for Company P at a price of £5.00 per share. The takeover will produce large operating savings with a value of £12 million. On day 4, Company Q publicly announces an unconditional offer to purchase all the shares of Company P at a price of £5.00 per share with settlement on day 20. Details of the large savings are not announced and are not public knowledge. On day 12, Company Q announces details of the savings, which will be derived from the takeover.

Required:

Ignoring tax and the time-value of money between days 1 and 20, and assuming the details given are the only factors having an impact on the share prices of Company Y and Z, determine the day 2, day 4, and day 12 share prices of Company P and Company Q if the market is:

• Semi-Strong Efficient.
• Strong Form Efficient.

In each of the following circumstances:

(i) The purchase consideration is cash as specified above, and

(ii) The purchase consideration, decided upon on day 2, and publicly announced on day 4,

is one newly issued share of Company Q for each share of Company P.

b. Academics have argued that market efficiency can be defined using three differing strengths; weak form, semi-strong form, and strong form. Critically evaluate the three differing strengths of market efficiency ensuring the response is supported with relevant academic evidence.

In this section students should demonstrate understanding, knowledge, and an ability to critically evaluate the differing theoretical viewpoints associated with differing structure of market efficiency. The response should attempt to incorporate a critical perspective through relevant academic referencing, rather than overly describing the differing models. Attempting to evaluate within a practical, real-life business context through investigation of academic empirical findings will assist in developing the response

QUESTION 3

It is 31 January 2022 and the managers of Carport Plc. are considering a change in the company’s dividend policy. Earnings per share for 2021 for the company were 70p, and the finance director has said that he expects this to increase to 75p per share for 2022. The increase in earnings per share is in line with market expectations of the company’s performance. The pattern of recent dividends, which are paid on 31 December is as follows:

The managing director has proposed that 65 per cent of earnings in 2022 and subsequent years should be retained for investment in new product development. It is expected that, if this proposal is accepted, the dividend growth rate will be 10.5 per cent. Carport PLC’s cost of capital is estimated to be 15 per cent.

Calculate the share price of Carport PLC in the following circumstances.

(a) The company decides not to change its current dividend policy.

(b) The company decides to change its dividend policy as proposed by the managing director and announces the change to the market.

(c) Does the dividend policy adopted by a company impact upon the market value of that company? Academic findings within this area have provided conflicting evidence with two distinct theoretical schools of thought; one supporting dividend relevance and the other dividend irrelevance. Critically analyse and evaluate the differing theoretical viewpoints, ensuring the response is developed through incorporating relevant academic research that has been performed within this area.

In this section students should demonstrate knowledge, understanding, and an ability to critically evaluate and analyse the main dividend relevance and irrelevance theoretical viewpoints. The response should be developed through use of a wide range of relevant academic literature, referenced as per Harvard referencing requirements. The inclusion and ability to integrate real-life practical business examples, addressing whether differing companies adopt a dividend relevance or irrelevance standpoint would assist in developing the response in greater depth.

The University policy on cheating collusion and plagiarism will be applied to this piece of work.

Guidance: Students should approach this assignment as an academic essay, weighing the arguments for and against each issue, making comment on the literature and drawing logical conclusions. Academic referencing using the Harvard referencing approach is a key requirement of the assignment to demonstrate wider reading and to underpin the discussions, ensuring they have relevant depth.

Marking Guide The learning outcomes for this module assessed by this piece of work are:

Knowledge

1. Examined and critically evaluated the key strategic decisions that a business may have to make and appreciated how accounting and finance can assist in making and evaluating those decisions.

2. A critical understanding of specific analytical skills in key decision areas within strategy and finance at local and international level

3. A critical understanding of the limitations of the current state of financial theory in making strategic business decisions

Skills

4. Applied the key valuation concepts and methodologies of financial decision making in order to contribute to the wider decision making of the organisation