Honeycomb is a public sector biological research laboratory

Assignment Help Accounting Basics
Reference no: EM131102970

To achieve this unit a student must:

  • Apply relevant forecasting techniques to obtain information for decision making.
  • Examine and apply the financial appraisal techniques used to evaluate potential investment decisions.
  • Interpret financial statements for planning and decision making.

 Background

Honeycomb is a public sector biological research laboratory in UK.  Its objective is to apply the latest scientific research to the development of new drugs.  After a new drug is developed, Honeycomb may either produce the drug itself or license it to some private pharmaceutical companies.

Task 1

Two years ago, Honeycomb spent £100,000 in a research project.  A post-audit has performed recently on the research project.  The research result was quite promising but the audit committee commented that the project was overspent.  Honeycomb disagreed on the accusation of overspending because the project scope has been expanded and the inflation rate at UK was high during the research period.

Now, Honeycomb is working on a study on the financial viability of applying the research result to the development of a new drug. If Honeycomb continue to apply the result, it has to spend £250,000 immediately to complete the research.  After completion, Honeycomb may either produce and sell the new drug itself or license it out.  The respective sales income and royalty income of the two alternatives are listed below:

547_2.png

If Honeycomb produces the drug, it will incur costs of materials and labour, which are estimated to be 65% of sales. If Honeycomb chooses to license it out, no cost will be incurred at all throughout the years.

Honeywell is owned by the Medical Faculty of a University, which has a policy to charge its venture, including Honeycomb, a nominal rent of £15,000 per year.

Honeycomb needs to borrow a loan to finance the £250,000. Honeycomb can borrow at a favourable rate of 10%. On the other hand, the Weighted Average Cost of Capital (WACC) of Honeycomb is 12%.

You are the financial analyst of Honeycomb. Write a report to the Finance Office of the University to advise the following issues:

(a) Select with reasons appropriate and relevant financial information for use in the process of making the strategic decision on investment in the development of the new drug. If you feel that the financial information available is not sufficient, you should explain them clearly in the report. (LO2.2)

(b) Honeycomb is in the public sector. You have to discuss the differences in choosing AND using appraisal methods between Honeycomb and an organisation in private sector. (LO 2.1)

(c) Use EACH of the current appraisal methods (accounting rate of return, payback method, net present value, and internal rate of return) to analyse the above two competing alternatives and make justifiable decisions. You have to clearly specify the choices you make under EACH method and your final decision by jointly considering all the analysis. (LO 2.1)

(d) Identify and appraise the possible, not just existing, sources of funds available to Honeycomb, and make proposals for obtaining funds for the drug project. You should consider in conjunction with the financial statements of Honeycomb at Appendix I. (LO 1.2)

(e) Make recommendations based on the post-audit appraisal in light of the research project two year ago and its relevance to the current analysis of the two alternatives. (LO 2.3)Task 2

Honeycomb has another drug that was launched a year ago. The company would like to set an appropriate level of advertising budget for next year (Year 2). The product manager has collected the Year 1 sales and advertising data as follows:

1219_2.png

The product manager has calculated the correlation coefficient to be 0.961.

Honeycomb wants some assistance in forecasting the Year 2 sales based on the Year 1 data. As the financial analyst, the product manager asks you to write him a memo on the following:

(a) Draw a scatter graph showing the relationship of sales and advertising. The graph should be properly labelled.

(b) Calculate the coefficient of determination and comment on it as well as on the correlation coefficient.

(c) Produce a table showing the three-month moving averages of the data.

(d) Prepare a forecast of sales for the first three months of year 2 assuming that advertising spending is the same as that in Year 1. Explain fully the method that you have used and any assumptions that you have made.

(e) Evaluate the appropriateness and limitation of the above forecasting models

(f) Discuss how the accuracy of future forecasts of the company might be improved. (LO 1.1)


Task 3

Honeycomb has just completed its financial statements for the year ended 30 June 2011 (see Appendix I). You are required to write a financial review based on the statements to the Finance Office of the University in the capacity of financial analyst of Honeycomb.

(a) Analyse the financial statements using 10 ratios to assess the financial viability of Honeycomb. You have to explain why each of the ratios is relevant to the performance, solvency, liquidity, or efficiency of Honeycomb. Working on the ratios should be shown clearly. (LO 3.1)

(b) Carry out a performance audit of Honeycomb in light of the ratios calculated at Task 3(a), including reference to internal and external factors. (LO 3.2)

(c) Discuss the limitations of financial statements and suggest the use of other appropriate calculations that may improve the quality and the understanding of financial statements with reference to Honeycomb. (LO 3.3)

(d) Make recommendations on the strategic portfolio of Honeycomb based on the interpretation of financial and ancillary information. (LO 3.4)

668_2.png

 

1427_2.png

182_2.png

Outcomes and assessment criteria -

 

Outcomes

Assessment criteria

To achieve each outcome a learner must demonstrate the ability to:

1. Apply relevant forecasting techniques to obtain information for decision marking

1.1     Select and use appropriate forecasting methods to enable cost and revenue forecasts to be constructed for an organisation, adjusting for expected movements such as price changes

1.2     Identify and appraise the sources of funds available to an organisation, and make proposals for obtaining funds for a specific project or resource

 

2. Examine and apply the financial appraisal techniques used to evaluate potential investment decisions

2.1     Use current appraisal methods to analyse competing investment projects in the public and private sector and make justifiable decisions

2.2     Select appropriate and relevant financial information for use in the process of making strategic decisions on investment

2.3     Make recommendations based on a post-audit appraisal on the appropriateness of selected investment project decisions

 

3. Interpret financial statements for planning and decision making

 

3.1     Analyse financial statements using relevant techniques to assess the financial viability of an organisation

3.2     Carry out a performance audit of an organisation including reference to internal and external factors

3.3     Use appropriate calculations to improve the quality of financial information used

3.4      make recommendations on the strategic portfolio of an organisation based on the interpretation of financial and ancillary information

 

Reference no: EM131102970

Questions Cloud

Shortest piece and the shortest piece : A boy purchased (bought) a party-length sandwich 60in. long. He wants to cut it into three pieces so that the middle piece is 6in. Longer than the shortest piece and the shortest piece is 9in. shorter than the longest piece. How long should the th..
Risk assessment for organizations : Part 1: Discuss the strategic value of personnel training and development. What are the implications for the MNC?
What responsibilities does an employer have to ensure a safe : What responsibilities does an employer have to ensure a safe and healthy work environment for employees? What is an example of a program or strategy HR professionals can implement to minimize risk to employees in light of workplace violence?
How much retained earnings will it need to fund : The company forecasts that it would require $10 million to fund all of its profitable (that is, positive NPV) projects for the upcoming year.If Buena Terra follows the residual model and makes all distributions as dividends, how much retained earning..
Honeycomb is a public sector biological research laboratory : Honeycomb is a public sector biological research laboratory in UK.  Its objective is to apply the latest scientific research to the development of new drugs.  After a new drug is developed, Honeycomb may either produce the drug itself or license it t..
Analyze the productivity levels of two management approaches : Analyze the productivity levels of the 2 management approaches, and decide which is superior. Include the SPSS output, which validates your conclusion.
How much did he invest at each rate : Nico is saving money for his college education. He invests some money at 7%, and $1500 less than that amount at 6%. The investments produced a total of $235 interest in 1 yr. How much did he invest at each rate?
What is the mass of the water : 1. What is the mass of the water? 2. What is the mass of the salt in your solution? 3. After the evaporation, your solution lost 100 g of mass.  How much salt (NaCl) is left in the solution?
Calculate keenan''s total dividends for 2005 : Calculate Keenan's total dividends for 2005 if it follows each of the following policies: Which of the preceding policies would you recommend? Restrict your choices to the ones listed, but justify your answer. Does a 2005 dividend of $9,000,000 seem ..

Reviews

Write a Review

 

Accounting Basics Questions & Answers

  Problem using an electronic spreadsheet

Mr. James runs a retail shop. Calculate the net income or net loss in reference to the following transactions that occurred during the month of January. Solve this problem using an electronic spreadsheet.

  Give the journal entries indicated for each transactions

Give the journal entries indicated for each of these transactions. Prepare the stockholders’ equity section of the balance sheet at December 31. At the end of the year, the accounts reflected net income of $ 36,000. No dividends were declared.

  Which of the following products probably would be

which of the following products probably would be manufactured using a job order costing system?a. paperb. baseball

  Consolidated federal income tax returns

Spacely Space Sprockets, Inc. was incorporated in Arkansas, and it has filed consolidated federal income tax returns as the parent corporation of an affiliated group of corporations since 1988. It is an accrual-basis, calendar year corporation.

  Assuming use of direct-labor hours to apply overhead to

ontario inc. manufactures two products standard and enhanced and applies overhead on the basis of direct-labor hours.

  The following is an excerpt from a conversation between the

here is the scenario that we are to comment onthis weeku2019s discussion focuses on activity 6-2 located on page 240 of

  Repair of damage incurred in reconditioning the press a

carl warren tina chester owns and operates pinebush print co. during september pinebrush print co. incurred the

  The firm is considering two financing options a 7-year loan

the industry average is about 75 days. the firm has also experienced an increase in its business in the last 2 years

  The following selected transactions relate to investment

Indicate any amounts that Ornamental Insulation would report in its 2011 balance sheet and income statement as a result of these investments.

  Partners a b c amp d form a medical equipment leasing biz

partners a b c amp d form a medical equipment leasing biz. on 1108 each partner contributed 20k. the partnership

  A manufacturing company uses a job order costing account

a manufacturing company uses a job order costing account system. overhead is applied using pounds of direct materials

  The discussion activity for module 1 is based on case 11

the discussion activity for module 1 is based on case 1.1 reliability of financial statements in financial and

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd