7024AFE Financial Decision Making CW2 Assignment Brief End-of-Semester | CU

7024AFE Assignment Task

CASE STUDY 1: Breakaway plc

Breakaway plc provides a range of management consultancy services to different sectors of the market in the UK. The company has been operating for the past 20 years, and is a subsidiary of Amber Holding, based in Dubai.

Breakaway plc has been a profit-making firm as it has retained its previous clients in addition to capturing an increasing share of the market. However, in the past 2 years, profits and cash flows for the company have reduced due to uncertainties and volatility effects in the market, and the company has been getting financial support from the holding company in Dubai.

The board of management recently met and have decided that they have to improve and take on some new projects in order to improve their profitability and cash flow. Consequently, the Finance Director of Breakaway plc has recently got in touch with your consulting firm and has engaged your firm with the mandate to provide them with an explanation of the cash flow problem that they are facing. They also require advice on sourcing finance for their expansion plans and on their planned projects.

In the past month there has been a number of meetings in London and in Dubai where it was agreed that Breakaway plc should do their best to expand the business and raise the required capital in the UK, or perhaps abroad, so as not to depend so much on cash coming from the parent company all the time. Consequently, the management of Breakaway plc is considering the following projects:

New Booking Model

The current booking model that Breakaway plc has been selling to companies is now deemed to be outdated and the company is looking to invest in a new model. The details of the proposal are outlined below.

Premium Model (PM)

Premium Model is the first of the two proposals. The expected life of this product is 5 years and its working capital requirements and the cost of new model, expected revenue, components costs, and overheads are as below:

The table above shows the estimated revenue and costs for operating the Premium Booking Model. All of the above estimates have been prepared in terms of present-day cost and prices unless otherwise indicated below. Assume that cash flows arise at the end of each period. In addition:

• Revenues are expected to rise by 5% in price terms per year from beginning of year 1.
• The cost of component A and component B are expected to rise in line with inflation at 4% per year from the beginning of year 1.
• Overheads are expected to rise by 4% per year from beginning of year 1.
• The working capital is cumulative and will be recouped at the end of year 5. Working capital costs already reflect the effect of inflation, so no inflation adjustment is required here.
• The costs of Software Technicians, who will be coming from Dubai have not been taken into consideration in the above projection and are as follows:

Software Technician 1 (ST1): Will be paid £144 per hour and expected number of hours for ST1 is 1,320. The rate paid is expected to rise in line with inflation at 4% per year from year 2 and the number of hours is expected to reduce by 2% per year, every year from year 2 onwards.

Software Technician 2 (ST2): Will be paid £120 per hour and expected number of hours for ST2 is 1,440. The rate paid is expected to go up in line with inflation at 4% per year from year 2 and the number of hours is expected to reduce by 3% per year, every year from year 2 onwards.

If Breakaway plc invests in this Premium Booking Model software, the discount rate that would be required to assess the NPV would be 10%.

7024AFE CASE STUDY 2: Cash Flows Forecast for Breakaway plc.

New Customer Service Suite (CSS)

The manager in charge of sales has just informed your company that they plan to open a new customer service Suite in Glasgow, and it is hoped that this suite will be opened for business on 1 August 2025. You have also been informed that to start with, the company will only sell two popular service packages, Service Suite 1 (SS1) and Service Suite 2 (SS2). This will be done to test the market and see if the business will break even in the same period. These two popular service packages will be offered at £348 for SS1 and £384 for SS2.

Breakaway plc intends to prepare a budgeted cash flow statement for a three-month period beginning from 1st August 2025 to 31st October 2025.

To help with the setup of the customer service suite, the company has just concluded a deal to get a bank loan of £24,000 on 1 August 2025. The interest on this loan will be 4% per annum. Both the loan and interest are repayable in equal instalments over 12 months beginning from the end of August 2025.

Breakaway plc plans to put in £5,000 cash as start-up capital and intends to sell a total of 2,400 (combined) of SS1 and SS2 for the same period.

Total budgeted sales for each month are as follows: August 800, September 800 and October 800, of which 50% of each month’s sales will be for SS1 and 50% for SS2.

Revenue from the sale of SS1 and SS2 will be based on 60% cash in the same month, and the remaining 40% credit to be paid the following month.

The company has provided you with the following additional information in the table below regarding the costs for the three-month period, starting from 1 August 2025.

1. The above table does not include the sales, beginning cash, loan and loan interest information, which must be taken into consideration when preparing the cash budgets. The information concerning these have already been provided above.
2. All costs shown in the table are fixed costs and are payable in the month they are incurred.

7024AFE CASE STUDY 3: Data for Break-even Analysis.

As stated in case study 2 above, the company will only sell two service suite packages, SS1 and SS2. This will be done to test the market and see if the business will break even in the same period. These two popular service suites will be offered at £348 for SS1 and £384 for SS2.

Breakaway plc will offer up to a total of 2,400 (combined) of SS1 and SS2 for the period and these will be split as to 50% of the sales for SS1 and 50% for SS2. They are not sure which combination of the two service suites will produce the most profits for Breakaway plc. Therefore, you will be required to assess the best product combination of sales for the period.

From their cost estimates, the variable costs of the service suites are £214 for SS1 and £251 for SS2. You can assume that the fixed costs are the same as that shown in total cost column in the table provided in case study 2. The fixed costs are for the whole 3-month period, so they are not affected by the level of service and there is no need to split them between the services mix. The variable costs, on the other hand, will increase with services output (i.e., sales output multiplied with variable cost per product).

Required:

Write a management report to the management of Breakaway plc. The management report should discuss the three case studies above in the order outlined below:

General:

Undertake a critical literature review of the tools you have used in this assignment such as investment appraisal techniques, break-even analysis and budgets and their importance to business.

Case Study 1:

1. Critically analyse the investment proposals for Premium Booking Model and provide recommendation by using the NPV and IRR investment appraisal techniques. Recommend to management whether or not the project is viable. Justify your recommendation(s).
2. Critically discuss the applicability, benefits, and limitations of both the NPV and IRR techniques.
3. Discuss two other investment proposal techniques that Breakaway plc may use to evaluate this investment.
4. Discuss the different sources of finance available to the company. Your discussion should include their advantages and disadvantages and make recommendations as to which of these sources are suitable for your recommended investment. Justify your choice(s) of sources of finance.
5. Discuss other issues concerning the current economic climate which management needs to consider that are vital for their deliberations in the investment recommendation.

Case Study 2:

1. Prepare a forecasted cash budget from August to October 2025 and evaluate the performance of Breakaway plc during the period concerned.
2. Based on the forecast cash budget you prepared, critically discuss how it can help in cash flow planning and critically evaluate the importance of cash budget for a business firm to survive.

Case Study 3:

1. Prepare a break-even analysis categorised into the two components. Your workings must clearly show the contribution per unit and the contribution to sales ratios (C/S) of each service suite, the weighted average C/S ratio, the total fixed cost, the break-even sales, and the break-even units.
2. Analyse the results of the break-even performance and suggest alternative product mix(s) that may increase profitability for Breakaway plc.
3. Briefly discuss the limitations of break-even analysis in relation to the information provided.

Assessed Module Learning Outcomes of 7024AFE 

The Learning Outcomes for this module align to the marking criteria which can be found at the end of this brief. Ensure you understand the marking criteria to ensure successful achievement of the assessment task. The following module learning outcomes are assessed in this task:

MLO3 Integrate financial data and management information in assessing business performance.
MLO4 Critically apply contemporary management accounting techniques to aid decision making in changing environments.
MLO5 Appraise the criteria for investments and/or capital projects and evaluate their sources of finance.