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Business and
management

Contents
Contents...........................................................................................................................................2
PART 1............................................................................................................................................1
1...................................................................................................................................................1
2...................................................................................................................................................1
3...................................................................................................................................................1
4...................................................................................................................................................1
5...................................................................................................................................................1
6...................................................................................................................................................1
7...................................................................................................................................................1
8...................................................................................................................................................1
Q9................................................................................................................................................1
Q10..............................................................................................................................................2
Q11..............................................................................................................................................2
Q12..............................................................................................................................................2
Q13..............................................................................................................................................2
Q.14.............................................................................................................................................2
Q.15.............................................................................................................................................3
Q.16.............................................................................................................................................3
Q.17.............................................................................................................................................3
Q.18.............................................................................................................................................3
Q.19.............................................................................................................................................3
Q.20.............................................................................................................................................3
Q.21.............................................................................................................................................4
Q.22.............................................................................................................................................4
Q.23.............................................................................................................................................4
Q.24.............................................................................................................................................4

Q.25.............................................................................................................................................5
PART 2............................................................................................................................................5
Question 2........................................................................................................................................5
1...................................................................................................................................................5
(a) Calculation of Break-even point in revenue (£) and in quantity (in units)............................5
(b) Calculation of margin of safety..............................................................................................6
(C) Calculation of units of vehicles to be sold for a target profit of £200000.............................6
2...................................................................................................................................................7
Limitation of Cost Volume Profit Analysis.................................................................................7
QUESTION 3..................................................................................................................................7
Payback period.............................................................................................................................8
Accounting rate of return.............................................................................................................8
Net present value.........................................................................................................................9
Internal rate of return.................................................................................................................10
Putting a statement to every computation..................................................................................10
Considering the advantages and drawbacks of every investing evaluation technique..............11
REFERENCES..............................................................................................................................13

PART 1
1
Balance sheet
2
Balance sheet
3
Net book value= Cost of asset – depreciation
= 200000- 40000
= 160000
4
Current asset = (620000+ 450000)- 500000
= 570000
5
The following are the 2 types of funding accessible to a single businessman:
 Lending from relatives members and colleagues is alternative option for financing.
 The foremost is individual resources, during which a solo entrepreneur spends money
that they have accumulated (Apa, Grandinetti and Sedita, 2017).
6
 Additional consideration is the length of duration and reason whereby the funds are
required.
 The initial consideration is the value of the stream of funding, whereby the lender must
repay in exchange for receiving the funds.
7
Longer run financing would be excellent for the financing of a pool of innovative vehicles
for marketing employees because it would give financing at a reduced cost of lending.
8
Profitability ratio
Q9
Gearing ratio = total Debt/ Total equity *100
= £450, 000/ 550,000 *100
= 81.81

Q10
Sales=£150,000
Cost of sales=£80,000
Operating expenses=£40,000
Mark up = sales – cost/ cost*100
= (150000-80000)/80000*100
= 87.5%
Operating Profit = Sales- Cost of sales- Operating expenses
= 150,000 -80,000 – 40,000
=£30000
Q11
Operational costs are simple to monitor since these are associated with
everyday operations.
Q12
Penetration approach is considered in order to achieve a larger industry presence by
maintaining prices affordable, resulting in increased awareness (Cassell, Cunliffe and Grandy,
2017).
Q13
Total cost of production (per unit) = raw materials & production costs + fixed costs
= 200+300
= 500
Profitability margin= 20%
Selling price as per the cost plus pricing strategy = Total cost of production + Total cost of
production (per unit) * Profitability margin
= 500+ 500*20%
= 500+ 100
Selling price = 600
Q.14
Break-even point in quantity = Fixed cost / Contribution per unit
= £75000 / (£600 - £450)

= £75000 / £150
= 500 units
Q.15
Calculation of Break-even point in value = Fixed cost / Contribution margin
= £75000 / 25% = £300000
Contribution margin = £150 / £600 * 100 = 25%
Q.16
(a)
Estimated Quantity for target profit = (Fixed cost + Target profit) / Contribution per unit
= (£75000 + £12000) / 150 = 580 units
(b)
Margin of safety = (Current sales – Break-even point) / Current sales * 100
= £580 - £450 / £600 * 100 = 21.67%
Q.17
Ke = D1 / (k – g)
Where, D1 = expected dividend per share = 25 + (25 * 6%) = £26.5
K = required rate of return = (25 / 196) + 6% = 6.13%
G = expected dividend growth rate = 6%
Hence Ke = 26.5 / (6.13 – 6)
= £26.5 / 0.13 = £203.84
Q.18
Required rate of return = 18%
Last dividend per share = 28
Dividend growth rate = 5%
Current dividend price = 28 + (28 * 5%) = £29.4
Formula of share price = Dividend per share / Required rate of return + growth rate
= £29.4 / 0.18 + 0.05 = £163.38
Q.19
Cost of Irredeemable bonds = 10 * (0.70) / 80 = 8.75%
Q.20
Cost of preference shares = (100 * 11%) (0.70) / 96 * 100

= 11 * 0.70 / 96 * 100 = 8.02%
Q.21.
Particulars Amount (m) Weight Cost of capital
(%)
Weighted
average cost
of capital
Irredeemable bond £20 0.2 8.75 1.75
Share capital £50 0.5 19.5 9.75
Preference share £30 0.3 11.22 3.366
Total £100 1 14.866%
Q.22
Particulars Amount (m) Weight Cost of capital
(%)
Weighted
average cost
of capital
Irredeemable bond £50 0.5 8.75 4.375
Share capital £20 0.2 19.5 3.9
Preference share £30 0.3 11.22 3.366
Total £100 1 11.641%
Q.23
Stock values, according to the Semi-strong variant of the effective marketing concept,
represent all accessible data, either publicly disclosed or otherwise.
Q.24
(a)
Scholars recommend the net present value technique of valuation methods as among the
effective techniques for selecting the finest estimated value among several (Engwall, Kipping
and Üsdiken, 2016).
(b)
The reason for this is that the NPV approach takes into account the temporal worth of
currency idea and converts prospective revenue inflows to current valuation. This is an approach
in which a corporation must undertake an investing plan if the net present value is favourable
that is it should not be negative. However, if the organisation has a lot of acquisition projects, it

must choose the one with the most viable investing projects. This is among the most effective
methods.
Q.25
Present value of cash inflow = £11000 * 3.1699 = £34868.9
Plus, residual value = £3000 * 0.683 = £2049
Total = £34868.9 + £2049 = £36917.9
Present value of cash outflow = £25000
Net present value = Present value of cash inflow – Present value of cash outflow
= £36917.9 - £25000
= £11917.9
PART 2
Question 2
1.
(a) Calculation of Break-even point in revenue (£) and in quantity (in units)
Profit and Loss A/c
Particulars Details Amount
Sales revenue 500 units * £50000 25000000
Less Variable cost 500 units * £30000 15000000
Contribution 10000000
Less Fixed cost 4000000
Net Income 6000000
Formula of Break-even point
In revenue = Fixed cost / Contribution margin
Where, Fixed cost = £400000
Contribution margin = contribution / sales revenue * 100
= £10000000 / 25000000 * 100
= 40%
Hence, break-even point = £4000000 / 40% = £10000000 in revenue
In Units = Fixed Cost / Contribution per unit
Where, Fixed cost = £4000000

Contribution per unit = Selling price per unit – variable cost per unit
= £50000 - £30000
= £20000
Breakeven point in units = £4000000 / £20000 = 200 units
Based on the aforementioned calculations, it is determined that if Jack Motors sells 200
components of automobile at a sales pricing of £50000 and incurs a varying expense of £30000,
they would neither make a gain nor a deficit. The break-even level analysis enables the business
to determine and estimate the level at which their output equals static expenses. Additional
benefit is that it aids the firm's management in detecting unaccounted expenditures and
structuring the operation appropriately (Gielnik, Zacher and Schmitt, 2017).
(b) Calculation of margin of safety
Formula of margin of safety = (Current sales – Break-even sales) / Current Sales * 100
Where, current sales = £25000000
Break-even sales = £10000000
Hence, margin of safety = (£25000000 - £10000000) / £25000000 * 100
= 60%
In a break-even assessment, the margin of safety is the proportion of selling which is
beyond the break-even selling. Based on the preceding calculations, Jack Motors' margin of
safety is calculated to be 60%. It signifies approximately 60% of the corporation's selling
volumes or turnover is greater than the break-even selling which produce returns or operating
profits. As a result, such response is critical for Jack Motors' administration to determine if the
item should be continued or otherwise.
(C) Calculation of units of vehicles to be sold for a target profit of £200000
Suppose that the number of automobiles to be supplied at a gain of £200000 is x.
Profit and Loss A/c
Particulars Details Amount
Sales revenue x units * £50000 50000x
Less Variable cost x units * £30000 30000x
Contribution 20000x
Less Fixed cost 4000000

Net Income 200000
On the basis of above P&L, the equation will become 20000x – 4000000 = 200000
= 20000x = 200000 + 4000000
= 20000x = 600000
X = 4200000 / 20000
= 210 units of vehicles.
As a result, according to the preceding formula, the corporation needs to sell 210 models of
automobiles in terms of making the £200000 revenue goal. This computation or conclusion is
critical for Jack Motors' manufacturing supervisor to comprehend and evaluate the quantity of
automobiles that must be sold in terms of meeting the company's profitability goals (Laukkanen
and Tura, 2020).
2.
Limitation of Cost Volume Profit Analysis
The following are some of the limitations of CVP assessment:
 This method also disregards the effect or significance of many other variables on income
and expenditure, resulting in an unreliable outcome.
 It is also ineffective in the longer term, with stock being among the major drawbacks of
the CVP calculation.
 Because this strategy is more focused on selling, it sometimes overlooks client need,
resulting in product loss.
 The classification and allocation of overall expense to constant and changeable expense is
tough for the business using CVP evaluation.
 Further issue in CVP evaluation would be that it implies that the sales value and
fluctuating expense per component would be consistent at all levels of production, which
really is unrealistic in practise.
 For a highly diversified company, the CVP approach is ineffective. It indicates that
companies who produce and market multiple products will find it challenging to
implement this strategy.
QUESTION 3
Calculation of net cash inflows
Year cash Deprecia cash Net cash cash Deprecia cash Net cash

inflows
of
Machine
Alpha tion
inflows
after
depreciat
ion
inflows
of
Machine
Alpha
inflows
of
Machine
Beta tion
inflows
after
depreciat
ion
inflows
of
Machine
Beta
1 4500 240 4260 4500 3000 240 2760 3000
2 4000 240 3760 4000 3000 240 2760 3000
3 3000 240 2760 3000 4400 240 4160 4400
4 3500 240 3260 3500 4600 240 4360 4600
5 2700 240 2460 2700 2500 240 2260 2500
Payback period
Year
Net cash
inflows of
Machine
Alpha
Cumulative
cash inflows
Net cash
inflows of
Machine
Beta
Cumulative
cash
inflows
1 4500 4500 3000 3000
2 4000 8500 3000 6000
3 3000 11500 4400 10400
4 3500 15000 4600 15000
5 2700 17700 2500 17500
Initial investment 1200 1200
Payback period 1 1
Payback period 1 year 1 year
Accounting rate of return
Year
Net cash
inflows of
Machine
Alpha
Net cash
inflows of
Machine
Beta
1 4500 3000

2 4000 3000
3 3000 4400
4 3500 4600
5 2700 2500
Average profit or cash
inflow 3540 3500
Average initial
investment 1200 1200
average initial
investment [(initial
investment + scrap
value) / 2]
ARR 33.90% 34.30%
Net present value
Year
Net cash
inflows of
Machine
Alpha
PV factor
@ 10%
Discounte
d cash
inflows
Net cash
inflows of
Machine
Beta
PV factor
@ 10%
Discounte
d cash
inflows
1 4500 0.909
4090.9090
909091 3000 0.909
2727.2727
272727
2 4000 0.826 3306 3000 0.826 2479
3 3000 0.751 2254 4400 0.751 3306
4 3500 0.683 2391 4600 0.683 3142
5 2700 0.621 1676 2500 0.621 1552
Total discounted cash
inflow 13718 13207

Initial investment 1200 1200
NPV (Total
discounted cash
inflows - initial
investment) 12518 12007
Internal rate of return
Year
Net cash
inflows of
Machine Beta
Net cash
inflows of
Machine Beta
0 -1200 -1200
1 4500 3000
2 4000 3000
3 3000 4400
4 3500 4600
5 2700 2500
Internal rate of return
(IRR) 362% 258%
Putting a statement to every computation
The original investing outlay for the 2 indicated equipment, Alpha & Beta, is 1.2 million,
which would be recouping within the foremost term because the aggregate money inflows are
greater than the original deposited fund, according to the payback time analysis.
ARR calculations show that the better the percentage, the more advantageous it is.
According to the estimates, equipment Alpha and Beta give ARRs of 33.9 and 34.3 percent,
correspondingly.
The NPV of machinery expenditure, Alpha & Beta, is 12518 and 12007, accordingly. The
larger the NPV, the more likely the money invested is to be profitable. Machine Alpha must be
prioritised by the company since it gives a higher NPV (Nadarajah and Kadir, 2016).

The IRR shows how profitable a future venture is. According to the assessment, equipment
Alpha has a higher IRR than equipment Beta. On this reasoning, it may be concluded that
Equipment Alpha has a better productivity than Equipment Beta, and therefore companies must
give greater consideration to picking it over Beta.
Considering the advantages and drawbacks of every investing evaluation technique
There are several types of investment evaluation methodologies, each with its own set of
advantages and disadvantages:
Payback period
Advantages Disadvantages
It is easy and straightforward to operate,
making speedy decision-making feasible.
It overlooks the temporal worth of currency
and fails to account for all income sources.
Flexibility has been demonstrated to be
beneficial in times of uncertainties.
It is unrealistic and disregards efficiency.
Accounting rate of return
Advantages Disadvantages
One of the easiest methods, it concentrates on
estimating efficiency employing accountancy
information.
Monetary inflows and temporal worth are not
taken into account. Furthermore, there is
indeed a disregard for cost and ambiguity.
Net present Value
Benefits Consequences
It takes into account the temporal worth of
cash.
Calculations of potential value are made
without taking into account expense involved,
resulting in an unrealistic prediction (Rosati
and Faria, 2019).
An easy method for determining the program's
viability while taking volatility into account.
It is possible that the EPS and ROE will not
increase due to the disparity in venture
multitude.
Internal Rate of Return
Advantages Disadvantages

The temporal worth of currency is
considered that is deemed to be easy to
understand. There is no need to calculate a
threshold percentage.
Savings of magnitude are overlooked, and the
purpose is uncertain. There seems to be a lack
of understanding of work concepts.

REFERENCES
Books and journals
Apa, R., Grandinetti, R. and Sedita, S.R., 2017. The social and business dimensions of a
networked business incubator: the case of H-Farm. Journal of Small Business and
Enterprise Development.
Cassell, C., Cunliffe, A.L. and Grandy, G. eds., 2017. The SAGE handbook of qualitative
business and management research methods. Sage.
Engwall, L., Kipping, M. and Üsdiken, B., 2016. Defining management: Business schools,
consultants, media. Routledge.
Gielnik, M.M., Zacher, H. and Schmitt, A., 2017. How small business managers’ age and focus
on opportunities affect business growth: a mediated moderation growth model. Journal
of Small Business Management, 55(3), pp.460-483.
Laukkanen, M. and Tura, N., 2020. The potential of sharing economy business models for
sustainable value creation. Journal of Cleaner production, 253, p.120004.
Nadarajah, D. and Kadir, S.L.S.A., 2016. Measuring Business Process Management using
business process orientation and process improvement initiatives. Business process
management journal.
Rosati, F. and Faria, L.G.D., 2019. Business contribution to the Sustainable Development
Agenda: Organizational factors related to early adoption of SDG reporting. Corporate
Social Responsibility and Environmental Management, 26(3), pp.588-597.