Problem: Pietro Yon, a local businessman, owns and manages a number of retail stores that sell a range of homewares.
Pietro is a member of the local business Chamber of Commerce and has been asked to chair a committee to research and study the success of Samsung PLC. The Chamber believes that there may be some useful learning from this study which members of the Chamber could use. You have been asked to provide specialist support to the committee and you are required to produce a range of materials for members of the committee to use.
View Samsung PLC's annual reports and investor information in attached file.
Assignment Task 1: Financial Data and Strategic Decision Making
You must produce a presentation for Pietro Yon to use at the next meeting of the Chamber of Commerce. The presentation should be based on your research of Samsung PLC and other relevant information. It must be accompanied by supporting notes.
Your presentation must include the following:
An evaluation of the sources of financial data which can be used to inform business strategy.
An assessment of the need for financial data and information in relation to the formulation of business strategy.
An analysis of the risks related to financial business decisions.
A review of methods that can be used for appraising strategic capital expenditure projects and strategic direction.
Assignment Task 2: Discussion Paper
A meeting has been arranged with Pietro Yon and other members of the committee and you have been asked to produce a paper for discussion which provides:
An interpretation of the financial statements of Samsung PLC to assess the current viability of the organisation.
A comparative analysis of financial data using ratio analysis for Samsung PLC. You are advised to download consecutive year's accounts from the Samsung PLC website.
Extension activities: Makes recommendations to Samsung PLC based on your analysis and interpretation of the financial position.
Assignment Task 3: Information Leaflet
Extension activities: You must produce an information leaflet for the Chamber of Commerce to distribute to the members. The leaflet should assess the following:
The impact of 'creative accounting' techniques when making strategic decisions.
The limitations of ratio analysis as a tool for strategic decision making.
The importance of cash flow management when evaluating proposals for capital expenditure.
You must prepare an additional section for the leaflet that: Recommends, with justifications, methods and tools that allow businesses to analyze financial data for strategic decision making purposes.
Assignment Task 4: Capital Expenditure Appraisal
Pietro Yon has been supplied with information from a component manufacturer who has asked for advice on the best project to accept for the purchase / replacement of a piece of machinery.
The company are considering selling their old machine that has a capital cost of £260 000 and replacing it with an up to date model costing £220 000. For immediate purchase the company will receive £120 000-part exchange allowance.
Both the current and new machines are able to meet the expected company demand, estimated at:
|
Year
|
Units
|
|
1
|
90,000
|
|
2
|
50,000
|
|
3
|
30,000
|
After three years, it is predicted that demand will be zero due to the technological developments in the industry.
The following data has been provided for the existing and new machine:
|
|
Current Machine £ per unit
|
New Machine £ per unit
|
|
Direct Materials
|
1.8
|
1.8
|
|
Direct Labour
|
0.75
|
0.6
|
|
Variable Overheads
|
0.45
|
0.3
|
|
Depreciation
|
0.35
|
0.55
|
Additional information:
(1) The selling price for each component is £5.00 and this will remain constant for the next three years.
(2) The company expects the cost of direct materials and direct labour to increase by 5% each year.
(3) The company predicts that repair and maintenance costs for the current machine will be £7000 per annum.
(4) The current machine is expected to have a zero residual value at the end of year 3.
(5) The company predicts that repair and maintenance costs for the new machine will be £1000 per annum.
(6) The new machine is expected to have a £75 000 residual value at the end of year 3.
The company's cost of capital is 15%.
Extract from the present value table for £1 at 15%
|
Year
|
Units
|
|
1
|
0.87
|
|
2
|
0.756
|
|
3
|
0.658
|
|
4
|
0.572
|
Pietro would like you to produce a business report that can be given to the company offering advice on the best course of action for the purchase / replacement machine.
Required: Prepare a report that evaluates the capital expenditure proposals using appropriate financial techniques.
Extension activities: You must include an assessment of the impact of the business proposal on the strategic direction of the organisation.
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