Financial Literacy and Project Analysis

This assignment delves into the importance of financial literacy in informed decision-making. It presents a scenario involving two projects (A and B) and requires students to analyze their Net Present Values (NPV). The solution emphasizes that project A should be accepted due to its higher NPV. The assignment also highlights relevant research on financial literacy's influence on individual and societal well-being.

Financial and economics literacy for
managers

Table of Contents
TASK 1............................................................................................................................................2
Question 1........................................................................................................................................2
Introduction.................................................................................................................................2
Business economics concepts of the market structure:...............................................................2
Conclusion...................................................................................................................................4
TASK 2............................................................................................................................................4
2. Concept of demand and supply and monetary policy of Bank of England ...........................4
INRODUCTION.........................................................................................................................4
CONCLUSION...........................................................................................................................5
TASK 3............................................................................................................................................5
3. Key macro-economic indicators.............................................................................................5
INTRODUCTION.......................................................................................................................5
CONCLUSION...........................................................................................................................8
TASK 4............................................................................................................................................1
4. Application of the concepts of leverage and current asset management.................................1
INTRODUCTION.......................................................................................................................1
CONCLUSION...........................................................................................................................2
TASK 5............................................................................................................................................3
Question 5........................................................................................................................................3
a)..................................................................................................................................................3
b).................................................................................................................................................3
REFERENCES................................................................................................................................5
1

TASK 1
Question 1
Introduction
Economy is the wider concept which contains almost all the tools which can know about
the overall situations of the country. UK economy is at the peak load and everyone is striving
hard to gain the sustainability in an effective manner. Although, this can be rightly said that the
organisation must have to consider all the business environment in an effective manner. This
question contains the business economic concepts of the market structure, small and medium
enterprises and growth strategies to the UK domestic to a UK local high street outlet (Lusardi
and Mitchell, 2014).
Business economics concepts of the market structure:
Market structure is the main which ultimately refers to the whole market where
organisation is totally relied their working activities. However, this can simply said that the
market covers various functions such as firm or competitive, that could explain the
characteristics of the competition and also the pricing policies that could be allowed in the
market. Therefore, market structure said to the one that could render most akin goods and
services in the market and whose layout is determined on the basis of the competition which has
played an efficient role in the market layout.
Market refers to the place where almost all buyers and the sellers complete the selling and
buying of the product in that market. Market simply means that the place where buyers and the
sales have defined various market hereunder:
Monopolistic competition: According to Monopolistic competition, where high number
of sellers are there which offers diverse kinds of products that are most akin to each other. On the
other way, more producer's manufactured the same goods.
Basic characteristics of Monopolistic market:
Product differentiation: Under this market, here the sellers sale the products which are
not identical to each other.
Large Number of organisation: There are almost many firms which operates under this
monopolistic competition. That is why, market is become so intense.
2

Free entry and exist: In this competitive strong among the organisations, organisation is
covering loss that could move out to industry at the time it forecasted. In this similar way,
advanced organisation can enter into the industry in a most free manner which has provided with
this unique features of the industry at the time it wants. In the same way, new organisation can
enter into the industry in an easy way.
Perfect Competition: This is the market structure where huge buyers and sellers are
implemented and whole are committed in buying and selling of the most akin goods during the
single price which are prevailing in the market. On the other hand, perfect competition also to as
a intense competition, which exists during the time where there is a no direct rivals and between
the competition between the rivals and whole firms sell identify the most akin goods at the time
of single price.
Oligopoly Market: Under this market, this is rightly said that here, only few sellers sale
the products which are most akin to each other. On the other way, Oligopoly market layout lies
between monopoly and monopolistic rivals. Where few of the sellers demonstrates the market
and have strong control over price of the products (Lusardi and Mitchell, 2011).
Monopoly Market: This is the market layout that demonstrated by the single seller,
selling an unique good along with limiting for advance firm to enter the market. Basically,
monopoly is a kind of market where there is the only one seller which sell the offers of a most
specific goods and there is no substitutes.
Small and Medium enterprises: These kinds of enterprises highly contributes for
economy for enhancing their GDP. As, this can be said that there are specific contribution
emerge from the specific manner. SME's are the most effectively tool as the average, they mostly
covers almost 95% of the company and this likewise employed 65-70% of the total labour force.
Apart from that, SMEs are the drivers of the economic emergence and innovation. Further,
SMEs are driver of the economic emergence growth and innovation that could assist the firm for
grow business in an efficiently. During UK economy, SMEs plays a vast role for contributing
annual return efficiently.
Multinational organisations: These are diverse firms that have their operations around
the globe that normally refers to have strong positions for operating business efficiently.
Although, this is rightly said that organisation requires to form specific tools that could be
3

implemented by the firm for improving economy. In UK, diverse stores are inaugurated by the
MNCs which main aim is to enhanced the business in an effective manner.
Growth Strategy: A firm have more scope for its one or more of their operations in
terms of their consumers group, customer functions and alternative tools for improving of its
whole performance.
Kinds of growth Strategies:
 Internal Growth strategies: These kinds of strategies that are linked to designing and
emerging new products or services which makes on the existing products for advanced
opportunities, and improving product sales throughout via an effective market reach,
improving existing product lines and services offerings, emerging out for an advanced
markets, and improving into foreign markets.
 External Growth Strategies: There are most specific growth strategies that could be
implemented by the firm for gaining the sustainability. Joint venture, and others. There
are various aims to maximise the profits in an effective management (.Fonseca, Mullen,
Zamarro and Zissimopoulos, 2012 ).
Conclusion
From the above mentioned question, this can be said that business economic concepts of
market structure have been identified under this. Various growth strategies have been defined
under this.
TASK 2
2. Concept of demand and supply and monetary policy of Bank of England
INRODUCTION
Demand and supply is important concept which helps to understand about UK housing
market through application of the provisions of law of demand and supply. It helps to
ascertaining about the facts which have direct impact upon the demand and supply. In this
regard, Bank of England provides monetary policy which has impact upon UK housing market.
Concept of demand and supply
One of the important concept of economics and considered as backbone of economy.
Demand refers about desire of buyers regarding acquirement of houses and property in UK. The
4

prices of house and land has direct relationship with quantity demanded. On other hand, supply
refers as capacity of market regarding providence of different offers to desired buyers.
Law of demand
This law provides that if the prices of any product and services is high then buyers are
less interested to purchase such products and services. It is also provided that it has impact upon
quantity demanded also. In UK, housing market is on boom and the prices are high which has
negative impact upon the buying behaviour of customers.
Law of supply
It is totally different provision in comparison to the law of demand. This shows if the
prices are high then seller are much interested in selling of large number of quantities. In relation
to UK housing market seller are much interested in selling of large number of houses and lands.
Monetary policy of Bank of England
This includes about the policies which are provided by Bank of England for the effective
regulation of housing market. Their main aim is to bring positive changes.
Change in interest rates: Change in this rate have direct impact upon many other factors
like loan and saving interest rates. It is observed that rates are increased by bank which has direct
impact upon the paying capacity of individual as they have to pay large amount of interest. This
will have negative impact upon housing market (Drexler, Fischer and Schoar, 2014).
CONCLUSION
It has been concluded from the above report that monetary policy helps in effective
regulation of market through considering different factors. Changes in interest rate has negative
impact upon housing market.
TASK 3
3. Key macro-economic indicators
INTRODUCTION
Macro-economic indicators refers to the statistics which are provided by the government
agencies which are used further to give insight into the economic performance of country. Such
different economic indicators are known as GDP, Money supply, Consumer price index, balance
of payment, interest rate and economic growth. All such factors helps in determination of the
economic condition.
5

Key macro-economic indicators
There are different economic indicators which helps in determination of the economic
condition which is prevail in UK. In the present case, such indicators are used to identify past
five years economic condition in UK. The different indicators are named as inflation, balance of
payment, interest rate and economic growth. Contribution of such different terms to understood
about UK's economy is defined below:
Changes in Gross domestic product
From the point of view of economists, it is considered as one of the most important
aspect which helps to measure current health of economy. As per this aspect, if the GDP
increases with effective rate then it depicts that the economy of nation is strong (Atkinson and
Messy, 2011.). This will also helps the businesses which are operating their is to make their
strategies according to GDP rate and make changes in their amount of different expenditures like
inventory, payroll and other investments which are based on GDP output. Sometimes, it provides
misleading information because of excessive government spending. It is simply used for
ascertaining the information regarding what is happen in past years and what is going to happen
in future.
6

From the above analysis of the GDP rate of UK, is is ascertained that it is increase by 0.4
percent in three months to December of 2017. The average growth rate in GDP which is attained
from 1955 to 2017 is 0.60 percent.
Unemployment rate
It is one of the important measure which helps to understand about the economic
condition of UK. It is observed that if the unemployment rate is between 3 to 5% this it is
considered to be healthy economy. This shows that is unemployment rate is high in country then
it has negative impact upon the spending power of individuals. This will have direct negative
impact upon different businesses, housing markets, GDP, Stock market etc. It is one of the
reason behind the continuous increase in government debt because the large number of amount
is spend upon assistance programme like unemployment benefits and food stamps.
It is understand from the employment rate present in UK that it has good economic
condition. Employment rate in UK is increase day by day with effective rate for ex., in 2002 it is
62.90%, 2006 is 63%, 2014 is 68.40% and in 2015 66.10%.
The unemployment rate in UK is at lowest of 4.2 percent in 2018.
7

Inflation
Consumer price index is important concept which helps to shows increased cost of living
and inflation. It calculated through measurement of cost of essential goods and services, medical
care, shelter, clothing, transportation, electronics etc. If the high rate of inflation is present then it
means the income of individual is compensate in more faster manner. This will decreases their
purchasing power. The present inflation rate which is prevail in UK is 2.5 percent. It shows that
the economic condition of UK is good (GAUDECKER, and VON, 2015).
CONCLUSION
It has been concluded from the above report that inflation, unemployment and GDP are
important determinants which helps to ascertain the information about the economic condition.
As per above analysis, it is noticed that economic condition in UK is strong in all respect.
8

TASK 4
4. Application of the concepts of leverage and current asset management
INTRODUCTION
Current assets management is important concept which contributes effective control over
their currents assets for the purpose ascertaining maximum return. There is huge importance for
organisation like Tesco to manage their current assets for improvement of decision-making. On
the other hand, there is huge important of borrowing power of Tesco for effective regulation of
business activities and purchase of equipments and inventories. It helps the managers in
improvement of overall decision making.
Current assent management
It is the process which includes the function regarding management of current assets in
organisation in most appropriate manner. This will includes the activities regarding evaluation of
the assets like debtors and stocks which is largely important for organisation which contributes in
maintenance of liquidity position in business. The concept of current asset management also
involves the function regarding administration of cash, prepaid expenses, cash equivalents,
accounts receivable etc. It helps the management of company is to effective application of their
assets for attainment of higher number of returns which satisfies the different requirements of
stakeholders. The assets are classified into two groups which are called as current and fixed
assets.
The main principle behind application of the concept of current asset management is to
keep the proper flow of income and liability for maintaining equal balance. The measurement of
the liquidity of organisation helps in ascertaining the fact about the ability of organisation to pay
off its existing debts. While managing the current assets of organisation, long term investments
are also considered for securing their future operations and maintenance of sustainability in their
operations. Determination of current ratio is works as key factor which contributes in effective
management of current assets in more appropriate manner with consideration of their current
liabilities.
Through having proper monitoring over their assets, management is able to formulate
inventory reports which helps in effective allocation of resources and decision-making regarding
lease of funds. Application of the asset management theory, contributes in application of

innovative provisions which helps in saving of money. It provides the opportunity regarding
bring efficiency in their business operations. The application of the concept of asset management
provides it optimum utilisation through effective resource planning and execution of
management programme.
2

Leverage
It is considered as investment strategy formulate through use of borrowed money. In this
regard, includes the use of financial instruments and borrowed capital for the purpose of
improvement of the potential return of an investment. It can also be refers as the amount of debt
which is further used regarding financing of assets. Through using this option of financing,
chance of bankruptcy is high. It is further classified into three types which are defined below:
Operating leverage: This includes the measurement of combination of fixed and
variable assets within a organisation. It refers to the amount of fixed assets which is prevail by
organisation. In other words, also said as the ratio of fixed assets over variable. It shows that
higher the degree of leverage which means high risk is associated with the future business
operations of organisation. This leverage helps in ascertaining the break even point and
improving their profits through bring potential changes in their pricing structure.
Financial leverage: This leverage provides the information about the amount which is
borrowed by the organisation and included in capital structure of organisation. It is also refers as
the use of debt for acquiring their additional assets. This will also known as trading on equity.
Higher the degree of financial leverage shows that large amount of debt is used for financing
their assets. This will have direct impact upon their bottom line earning per share as they need to
pay higher amount of interests
Combined leverage: This leverage helps in ascertaining the total amount of risk which is
faced by the organisation while providing their business functions. It also helps in ascertaining
the total amount of return which is attained by organisation from business activities. It is used by
the cited organisation for improving their capital structure and break-even analysis.
CONCLUSION
It has been concluded from the above report that current asset management is important
for Tesco as multinational organisation to effectively attain their goals and targets. It provides
the opportunity to get higher amount of returns through effective use of their assets. Application
of three different types of leverages improves decision-making of managers.
3

TASK 5
Question 5
a).
Ratios 2016 2015
Liquidity Ratio 12162 /4,886 =2.489 8862/7852=1.12
Market value ratio 149.5/40.6=3.68 138.5/40.6=3.41
Asset management ratio 54,433 /29,076=1.87 56,925 /32,256=1.76
Debt management ratio 43904 /8,616 =5.09 37138/7071=5.25
Gross profit ratio 2,854 /54,433*100 =5.24 2,203/56,925 = 3.87
Liquidity ratio: In 2015 it is 1.12 which increased in 2016 and reached to the level of
2.489. This is happens because of increment in cash reserves.
Market value ratio: In 2015 it is 3.41 and it 2016 it reached to the level of 3.68. This will
good position in market from business activities.
Asset management ratio: It is observed 1.76 in 2015 and it is increased up to 1.87 in
2016.
Debt management ratio: In 2015, it is noticed 5.25 and it is decreased in 2016 up to the
level of 5.09.
Gross profit ratio: In 2015, it is attained 3.87 and in 2016 the level of 5.24 reached.
b).
For measuring of present value, this can be measured as:
Present value= Future Value/(1+r)^n
Here,
r means= Interest Rate
n means= Number of years
here,
Present value= 650(1.0450^3=569.59
4

C).
Year Project A Project B PV@11.25% Present value of project A PV OF project B
0 -50000 -50000 1 -50000 -50000
1 26000 0 0.898876404 23370.78652 0
2 17625 0 0.807978791 14240.62618 0
3 15000 0 0.72627307 10894.09605 0
4 10000 0 0.652829726 6528.29726 0
5 32000 99500 0.586813237 18778.02358 58387.91707
PV 73811.82959 58387.91707
NPV 23811.82959 8387.917066
Here, project A must be accepted as this have higher NPV than the project .
5

REFERENCES
Books and Journals
Lusardi, A. and Mitchell, O. S., 2014. The economic importance of financial literacy: Theory
and evidence. Journal of economic literature. 52(1). pp.5-44.
Lusardi, A. and Mitchell, O. S., 2011. Financial literacy around the world: an overview. Journal
of pension economics & finance.10(4). pp.497-508.
Fonseca, R., Mullen, K. J., Zamarro, G. and Zissimopoulos, J., 2012. What explains the gender
gap in financial literacy? The role of household decision making. Journal of Consumer
Affairs. 46(1). pp.90-106.
Drexler, A., Fischer, G. and Schoar, A., 2014. Keeping it simple: Financial literacy and rules of
thumb. American Economic Journal: Applied Economics. 6(2). pp.1-31.
Atkinson, A. and Messy, F.A., 2011. Assessing financial literacy in 12 countries: an
OECD/INFE international pilot exercise. Journal of Pension Economics & Finance.
10(4), pp.657-665.
GAUDECKER, H. and VON, M., 2015. How does household portfolio diversification vary with
financial literacy and financial advice?. The Journal of Finance. 70(2). pp.489-507.
Knoll, M. A. and Houts, C. R., 2012. The financial knowledge scale: An application of item
response theory to the assessment of financial literacy. Journal of Consumer Affairs.
46(3). pp.381-410.
Klapper, L., Lusardi, A. and Panos, G. A., 2013. Financial literacy and its consequences:
Evidence from Russia during the financial crisis. Journal of Banking & Finance.
37(10). pp.3904-3923.
Babiarz, P. and Robb, C. A., 2014. Financial literacy and emergency saving. Journal of Family
and Economic Issues. 35(1). pp.40-50.
Online
Current Account 2018 [Online]. Available through:<Stylidis, D. and Terzidou, M., 2014.
Tourism and the economic crisis in Kavala, Greece. Annals of Tourism Research, 44,
pp.210-226>.
6

https://www.economicshelp.org/wp-content/uploads/2016/04/current-account-from-
2001.png
7