Managing Finance

BTEC : EBM

Unit No. and Title Managing finance

Assignment no. 02

Assignment Title Cost of finance

Assignment Due date Pls refer to assignment Schedule

Assignment

Brief

Assignment Task/

Description

The student will need to answer TASK A and TASK B mentioned below:

Task A:

Scenario:

ABC Training with an annual turnover £ 25 million, is contemplating relocating to new premises. Two possible sites are available with slightly different features and aspects. The re-location will help them to be able to meet clients' needs more effectively.

Location A:

Investment required for the move = £10 million

The location is in the heart of the city centre and an estimated increase of 25% is expected if this option is chosen.

Location B:

Investment required for the move = £8 million

Very close to city centre and business will increase by 10% if this option is selected.

ACB Training is a private limited company formed ten years ago by a group of five ex-lecturers. The five are the main shareholders but there is also a shareholder who was a local businessperson who initially approached two of the five to run a training course for her company. They have the following options to generate the finance;

a) The management is thinking of generating the required finance by issuing 1 million new shares of £ 10 each.

b) One of the banks with which ACB training has a long lasting financing relationship has sent a quote to provide loan for the money needed. The interest rate is 7% per annum and the maximum loan period can be 10 years.

c) The retained earnings account showed a balance of £ 25 million in the last year's balance sheet.

d) One of the competitor companies have offered to help ACB Training with this project, the investors are expecting 80% share of profit in the future ventures.

In scenario, evaluate the costs of sources of finance available to ACB Training to carry out the projects outlined. Also mention how the option selected will reflect on company's financial statements.

Task B:

Write an essay on the importance of financial planning