MGTM04 Corporate Governance and Financial Management, Assignment 2 Brief

This assessment is in two parts, please answer all elements.

The assignment carries a weighting of 100% and students should write 4000 words (+10%). It is recommended that this section of the assignment be completed using Microsoft Word.

Submission.

The submission date for the assignment is 288h of May 2025. The assignment must be submitted ONLINE through TURNITIN© by the due date. Only assessments submitted through TURNITIN© will be marked. Any other submission including submission to the library in hard copy will be treated as a non-submission.

There will one Turnitin submission boxes for Part A and Part B respectively.

Please note that this is an individual assignment and the policy of the University on “Policy on Cheating, Collusion and Plagiarism” applies.

THE FRONT COVER OF YOUR ASSIGNMENT MUST SHOW: 

1. Your name.
2. Your student registration number.
3.  Your Programme of Study (e.g., MSc Finance and Management)
4. The word count for Part A&B (excluding the reference list, bibliography, and any appendices).
5. The name of your MGTM04 module leader/ Tutor and your programme leader.

Notes and Guidance

To obtain a high mark, you should

a) Make your report concise, precise and well-presented and structured.
b)  Draw logical conclusions from accounting information.
c)  Synthesize information in a coherent and useful way.
d)  Show evidence of key text and background reading.
e)  Incorporate your knowledge into an integrated piece of work.
f)  Demonstrate critical understanding of financial management.

A Harvard standard referencing is required for this assignment.

For further guidance, please see page 8.

Part A

Requirements

1)  Blockchains represent a novel application of cryptography and information technology to age-old problems of financial record keeping, and they may lead to far reaching changes in corporate Governance. Many major players in the financial industry have begun to invest in this new technology, and stock exchanges have proposed using blockchains as a new method for trading corporate equities and tracking their ownership.

Required:

Create a report where you will evaluate the benefits for companies of having good Corporate Governance and how Blockchain technology can improve and reduce Corporate Governance issues due to principal-agent problem, particularly accounting fraud.             
                                                                                                            
                                                                                    (Approximately 800 words, 20%)

In this section students should demonstrate understanding, knowledge, and an ability to critically evaluate the differing theoretical viewpoints associated with the topic. The response should attempt to incorporate a critical perspective through relevant academic referencing, rather than overly describing the topic. Attempting to evaluate within a practical, real-life business context through investigation of academic empirical findings will assist in developing the response.

Part B

Synopsis 

It has been three months since your promotion to assistant financial manager at fashion company RR Ltd. RR Ltd is a fashion retailer listed on the AIM market. The firm was founded 10 years ago, after a short and successful period as a partnership between Rebecca and Roy Race. The company has grown rapidly and has two successful own brand labels, ‘RR’ catering for the middle-income woman’s market and ‘Racey’ aimed at younger women.

RR    Ltd distributes its two major seasonal lines (spring/summer and autumn/winter) under the ‘RR’ label and its young women’s label ‘Racey’ through major high street retailers in the UK and United States. Sales are also generated through exhibits of new collections at clothing exhibitions and through a fledgling, but not dynamic online presence, and very occasional webcast fashion shows.

Task 1

RR    Ltd has recently established a private pension scheme for its employees and the financial manager has asked you to provide a short report on why diversification generally leads to a reduction in risk relative to return. This report will be made available on the company website to inform employees on how the pension scheme manages both risk and return when selecting investable assets (including reference to forms of risk, covariance, perfect positive correlation, perfect negative correlation and CAPM Beta). You will need to create a London Stock Exchange portfolio of shares worth £1m using London Stock Exchange simulator and include screenshots of the London Stock Exchange portfolio as well as analysis charts to explain how a pension fund can minimise risk through diversification and support your arguments. 

                                                                                                                       (Approximately 1000 words, 25%)

In this section students should demonstrate understanding, knowledge, and an ability to critically evaluate the differing theoretical viewpoints associated with the topic. The response should attempt to incorporate a critical perspective through relevant academic referencing, rather than overly describing the topic. Attempting to evaluate within a practical, real-life business context through investigation of academic empirical findings will assist in developing the response.

Task 2

Currently, the management at RR Ltd are in preliminary decisions on a horizontal acquisition of ‘Sporty PLC’. Sporty PLC has an established men’s fashion brand; however, it is seen as a ‘Problem Child’ evidenced by relatively low market share in an industry segment that is experiencing growth. Industry analysts believe declining sales is principally due to not anticipating current tastes/trends and the financial manager has approached you for information on what value to place on Sporty PLC.

If the acquisition takes place, Sporty PLC will operate as a separate entity within RR Ltd. Existing designers at

RR    Ltd are very knowledgeable on the female market and believe they can transfer these skills to men’s fashion. Also, Roy Race is an ex-professional footballer and is passionate about men’s sport/casual wear. Both Rebecca and Roy are confident that synergies will improve economies of scale and scope, quality and in the medium-term, key performance ratios for Sporty PLC will be comparable to RR Ltd. RR Ltd’s share price is currently £9.00, and the company’s earnings per share stand at 30p. RR Ltd’s weighted average cost of capital is 10%.

The board estimates that annual after-synergy benefits resulting from the takeover will be £6m, that Sporty’s distributable earnings will grow at an annual rate of 5% and that duplication will allow the sale of £20m of assets, net of corporate tax (currently standing at 30%), in a year’s time. Information relating to Sporty PLC:

Required:

1)   Given the information above, calculate the value of Sporty PLC using the following valuation methods:

a)    Price / Earnings Ratio. (using RR Ltd’s P/E ratio)
b)    Dividend valuation method.
c)    Discounted cash flow method.

Based on your calculations, justify the value of Sporty PL and whether the company should ahead with the merger or not. In your answer, you need to focus on financial and non-financial motives for this acquisition.

In this section students should demonstrate understanding, knowledge, and an ability to critically evaluate the differing theoretical viewpoints associated with the topic. The response should attempt to incorporate a critical perspective through relevant academic referencing, rather than overly describing the topic. Attempting to evaluate within a practical, real-life business context through investigation of academic empirical findings will assist in developing the response. 

Task 3

Designs for RR Ltd’s fashion lines are created inhouse and manufacturing takes place across numerous locations in Birmingham, however the company is keen to expand into Asian-Pacific markets and is considering a small manufacturing base in Vietnam.

The project will have an initial outlay of £1m and a 0.2 probability of producing a return of £700,000 in Year 1 and a 0.8 probability of delivering a return of £600,000 in Year 1. If the £700,000 result occurs, then the second year could return either £600,000 (probability of 0.5) or £300,000 (probability of 0.5). If the £600,000 result for Year 1 occurs, then either £700,000 (probability 0.8) or £400,000 (probability 0.2) could be received in the second year. All cash flows occur on anniversary dates. The discount rate is 14%
Required:

1)    Calculate:
a)    The expected NPV.
b)    The standard deviation of NPV.

c)    The probability of the NPV being less than zero assuming a normal distribution of return
– (bell shaped and symmetrical about the mean).

       Note: These calculations should be included in the main body of your assignment answer.

2)    Based on your analysis of the macroeconomic risk factors, you believe that if the project was delayed by a year, RR Ltd would be able to improve the accuracy of the Year 1 probability estimates, which could lead to a reduced initial outlay and discount rate. Please redo the calculation in part (1) based on this new information and include them and the answers within Appendix 1.

Upon finishing both sets of your calculations, a colleague states that the ‘traditional NPV method is just as effective as an NPV method incorporating probabilities and real option perspectives’. Critically evaluate this statement.

In this section students should demonstrate understanding, knowledge, and an ability to critically evaluate the differing theoretical viewpoints associated with the topic. The response should attempt to incorporate a critical perspective through relevant academic referencing, rather than overly describing the topic. Attempting to evaluate within a practical, real-life business context through investigation of academic empirical findings will assist in developing the response.