7025CL Management Finance Coursework 2 Assignment Brief | CU

Assessment Learning Outcomes

This assignment is designed to assess all learning outcomes: MLO1 to MLO6

Details of the Task

Case Study 1 – Sustainable Fabrics: Paving the Way for a Greener Future

“The textile industry is transforming significantly as the world becomes increasingly aware of environmental issues. Sustainable fabrics are at the forefront of this change, offering a promising solution to reduce the industry’s environmental footprint.

The global Sustainable Fabrics Market was valued at $17.6 billion in 2023. It is expected to grow at a compound annual growth rate (CAGR) of 8.1%, reaching $27.8 billion by 2029. This growth is driven by increasing environmental concerns, rising demand for eco-friendly products, and advancements in sustainable textile technologies.”

– BCC Research, November 2024

Ecofabz Limited is a well-established name in the global textile industry. It produces more than 200,000 metric tons of fabric and half a million garments annually. The company works closely with some of the most recognisable international brands. The company has carved out a niche for itself by offering high-quality clothing at lower prices, without compromising its strong focus on sustainability and ethical practices. These include making commitments to reduce waste, energy usage and carbon emissions. The company is keen to develop advanced sustainable textiles to address environmental concerns and align with the growing consumer preferences for eco-friendly products.

Ecofabz Limited is appraising the feasibility of investing in new facilities that specialise in producing high-quality fabrics and garments from 100% recycled materials, such as factory cutoffs, organic fabrics and end-of-life clothing to create new fibres. The development of eco-friendly manufacturing processes not only aligns with global sustainability trends but also empowers the company to partner with leading fashion brands committed to sustainability. Ecofabz aims to position the firm as a top choice for businesses seeking eco-conscious fabric solutions.

The following information involves required investment, projected revenues and expenses, and other information for this project:

a. Assembly facilities and processing equipment would have to be acquired and installed. These assets are estimated to cost $500 million, including installation cost. These would have to be fully paid before the commencement of the project.

b. The land on which to build the extended facilities would have to be leased from the state, at a monthly rental of $100 000.

c. The facilities and equipment are expected to have a 10-year useful life, after which they will have to be replaced when new technology requires upgraded infrastructure. There is no scrap value at the end of the asset’s life. Depreciation on the new infrastructure will be at a cost over 10 years using the straight line method.

d. Annual revenue in dollars over the next 10 years is projected to be as follows:

e. This project would require an increase of net working capital of $80 million to finance operations such as inventory purchases. This net working capital will be released at the end of the project’s life.

f. Annual fixed expenses (excluding rent) are projected at $40 million. Included in fixed expenses are administration, sales and marketing expenses. Variable expenses would be 20% of annual revenue.

g. Ecofabz’s board of directors has specified a required rate of return of 12% on this investment.

h. Ecofabz pays a corporate tax rate of 18%. Capital gain on asset disposal is charged at the corporate tax rate.

Case Study 2 – Budgeting Ahead

On 1 October 2024, Ecofabz is attempting to budget cash flows through 31 December 2024. A bank loan of $5 million was borrowed on 1 June 2024 to carry the company through the trading seasonal peaks. The interest payable on this note is at 5% per annum, and cash Interest payments on this loan are settled monthly. Half of this loan is due end of November 2024.

The company only transact on credit sales. A discount of 5% is given to all customers who pay within one month. 60% of the accounts receivable will be received in the month of sale. 30% will be collected in the following month, and 10% will be received 2 months after the sale. There is a 10% provision for bad debt for accounts receivable owing 2 months after sale.

Projected and Actual Sales are:

Purchases are made based on 80% of the following month’s projected sales. Half of the purchases are paid for in the month of purchase, and a 5% prompt settlement discount is received. The remainder is paid in full the following month.

Total budgeted fixed operating expenses for the year are $24 million. Fixed costs are accrued evenly through the year. The operating variable costs are determined to be 20% of that month’s projected sales. Both fixed and variable operating expenses are paid in the month incurred.

Opening cash balance as at 1 October 2024 is $20 500 000.

Requirements

You will be required to write a management report in which the following points should be discussed.

• Analyse the Investment proposals by using NPV and IRR and provide recommendations. You should also briefly comment on other investment proposal techniques that Ecofabz may use, and the limitations of using these techniques.
• Explain the different sources of funding available to the company, their advantages and disadvantages and make recommendations as to how these funding sources are appropriate to the planned investment project.
• Prepare a forecasted cash budget for October to December 2024.
• An evaluation of the company’s performance or position during the same period.
• A detailed Literature Review of the tools you have used, such as capital investment techniques and budgets and their importance to the business case.
• Other issues for management to consider that you think are vital for them to survive and make a profit.

Assignment Guidelines

Structure

You have been asked to produce an individual report (word count 2,500). It should contain the following:

• Appropriate coversheet (as attached in this document)
• Title Sheet
• Executive Summary
• Contents Page
• Introduction
• Literature review to support your accounting models used.
• Sources of Funding
• Investment appraisal
• Cash budgeting
• Evaluation
• Any other issues to be considered.
• Conclusions and Recommendations
• Appendices, which should be numbered. (Make sure you refer your reader to them as required)

Layout

• Font style, Arial, font size 12
• 1.5 line spacing
• The page orientation should be ‘portrait’.
• Margins on both sides of the page should be no less than 2.5 cm
• Pages should be numbered.
• Your name should not appear on the script.

Plagiarism Warning!

Assignments should not be copied in part or in whole from any other source, except for any marked-up quotations that clearly distinguish what has been quoted from your own work. All references used must be given, and the specific page number used should also be given for any direct quotations, which should be in inverted commas. Students found copying from the Internet or other sources will get zero marks and may be excluded from the university.

Word Count

Any work submitted with more than 2500 words will have 10 marks deducted.