The Examiner's Answers – F3 - Financial Strategy May 2011

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The Examiner's Answers – F3 - Financial Strategy Some of the answers that follow are fuller and more comprehensive than would be expected from a well-prepared candidate. They have been written in this way to aid teaching, study and revision for tutors and candidates alike.

SECTION A Answer to Question One REPORT TO THE DIVISIONAL BOARD OF THE SNACKS DIVISION OF F Plc From: Management Accountant th Date: May 26 2011 The purpose of this report is to present the results of the investment appraisal exercise into the proposed launch of MATT SNACKS in France. The report will detail investment appraisal of the proposed project and the evaluation of what, if any action might be taken on 1 January 2013 if Scenario B occurs in the first year. It will also examine the wider financial implications of the project on both the Snacks Division and F plc and conclude with a recommendation.

(a) (i) Scenario A Distribution centre Net EUR cash flows, growing at

Base data

1-1-12 2012 EURm EURm -8.40 9.00

2013 EURm

2014 EURm

9.45

9.92

2015 EURm 5.20 10.42

GBPm 1.2000

GBPm 1.2240

GBPm 1.2485

GBPm 1.2734

GBPm 1.2989

-7.00 -3.00

7.35

7.57

7.79

12.03

-2.00

-2.10

-2.21

-2.32

5.47

5.58

35%

5.35 2.45

9.71 -1.40

35% 35%

1.05 -1.87

-1.91

-1.95

-2.00

-10.00

6.98

3.56

3.63

6.31

1.000 -10.00

0.870 6.07

0.756 2.69

0.658 2.39

0.572 3.61

5%

GBP/EUR exchange rate GBP equivalent cash flows GBP market research/launch GBP cash outflows, growing at NCF (Net cash flows) Tax relief on distribution centre (2.45 = 35% x 8.4/1.2000 & 1.40 = 35% x 5.2/1.2989) Tax relief market research/launch Tax payable on NCF excl residual

5% -10.00

Net GBP equivalent cash flows Discount factor PV Total NPV is GBP 4.76 million

Financial Strategy

15%

1

May 2011


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