The directors of uw plc are keen to attract internal

Assignment Help Financial Management
Reference no: EM13371096

The Directors of UW PLC are keen to attract internal investment to support the expansion of sales.

The company buys raw widgets and, using a complex machining process, produces finished widgets for world-wide consumption. Although demand for finished widgets has been falling during the last few years, UW has just secured a contract with a large company based in China, which will increase its turnover significantly for the foreseeable future. However, the company needs to invest in high-value production machinery to satisfy the increase in demand and will need to raise finance to fund this capital investment. Unfortunately, the company's bankers have declined to offer UW a loan until fully audited forecast accounts have been produced for the coming year.

The Financial Controller has produced forecast accounts for the current year as well as the following table, which compares performance for the past three years with the current year:

 

Y/E April 2009

£000s

Y/E April 2010

£000s

Y/E April 2011

£000s

Y/E April 2012

$000s

Turnover

17,076

16,419

15,780

13,200

Cost of Sales

7,982

7,675

7,380

6,150

Indirect Expenses

3,894

3,744

3,600

3,000

Net Profit

5,200

5,000

4,800

4,150

The Directors are certain that the bank will refuse a loan on this basis and have asked the Financial Controller to review his forecast to see if there is any way in which forecast profit can be improved.

The Financial Controller has suggested the following ways in which this objective might be achieved:

1. The company has used the First-In-First-Out FIFO) method of stock valuation for many years. However, rough calculations show that profit might be increased by adopting the Average Cost (AVCO) method of stock valuation. The justification for this is that all UW's main competitors use this method of stock valuation, and changing their method would make comparisons more meaningful.

2. The contract with the company in China requires delivery according to the schedule in the Appendix.

Although delivery of the first tranche of goods will take place in June of the following financial year, the Financial Controller believes that income for 120 widgets may be recognised in the year ending 30th April, 2012.

Required:

1. Produce UW's forecast accounts for the year ending 30th April 2012 on the following bases:

a. Without changing stockholding policy or including May sales to China.

b. Changing stockholding policy but excluding sales to China.

c. Without changing stockholding policy but including sales to China.

d. Changing stockholding policy and including sales to China.

2. Comment on the validity of the Financial Director's proposed treatment of stock valuation and revenue recognition, referring to relevant International Accounting Standards as appropriate.

Reference no: EM13371096

Questions Cloud

1 a new diagnostic test has been developed to diagnose : 1. a new diagnostic test has been developed to diagnose disease y. the new test was compared to the standard diagnostic
Historicallyon christmas day the weather in a certain : historicallyon christmas day the weather in a certain midwestern citynbsp has had the following
Assume that the following data are from a random sample of : assume that the following data are from a random sample of the body temperatures of 55 healthy adults.use excel or your
You are required to provide a portfolio of 3000 words : you are required to provide a portfolio of 3000 words comprising two equal elements as followspart onethis will
The directors of uw plc are keen to attract internal : the directors of uw plc are keen to attract internal investment to support the expansion of sales.the company buys raw
Bob is considering using a value stream map vsm to analyze : bob is considering using a value stream map vsm to analyze the process of furnishing the interior of an office
Questionyou have recently been appointed as a manager for a : questionyou have recently been appointed as a manager for a well-known local organization. after your first few weeks
1 following are positions taken by twelve senators on a : 1. following are positions taken by twelve senators on a half dozen key issues. the issues are scaled from 1 to 5 with
1consider the following scenario for object recognition : 1.consider the following scenario for object recognition with two types of objects a and b where the ultimate goal is

Reviews

Write a Review

 

Financial Management Questions & Answers

  Find what is the project''s net present value

The initial cost of the fixed assets is $61,000. These assets will be worthless at the end of the project. An additional $4,500 of net working capital will be required throughout the life of the project.

  Define what is the current price of the bond

When it matures at the end of 7.5 years it pays out $1,000. If investors wish to earn 2.35% per year on this bond investment, what is the current price of the bond

  International finance problem

International Finance Problem

  Explain the default risk and liquidity premiums for bonds

The default risk and liquidity premiums for this company's bonds total 0.9 percent and are believed to be the same for all bonds issued by this company. If the average inflation rate is expected to be 5 percent for years 5, 6, and 7, what is the y..

  Explain what is ssp''s net investment required in the fmc

What is SSP's net investment required in the FMC? Assume that both pieces of equipment are being depreciated to a zero salvage value?

  Questiongabriel plc has an annual turnover of rs 3 million

questiongabriel plc has an annual turnover of rs 3 million and a pre-tax profit of rs 400000. it is not quoted on a

  Terms of diversity

Description: Write a report about your workplace analysing it in terms of diversity. Convince your manager to develop a "Diversity Management Strategy" by explaining the advantages of having such a strategy. Support your argument with evidence, resea..

  Determine how large must each of the 5 payments be

To get the money for this payment, you will make 5 equal deposits, beginning today and for the following 4 quarters, in a bank that pays a nominal interest rate of 8% with quarterly compounding.

  Determine the beta of one security by regressing the returns

Determine the beta of one security by regressing the returns for the share on the returns for the FT ALL Share Index and determine the co-variances for each pair of securities in the portfolio

  A sample is provided in the doc sharing area.

A sample is provided in the Doc Sharing area.

  Should the fi buy put or call options to hedge

Should the analysts be worried about the dollar depreciating or appreciating and if the FI decides to hedge using options, should the FI buy put or call options to hedge the CD payment? Why

  Explain what is the firm''s after tax cost of debt

The bonds mature in 11 years and carry a 9 percent annual coupon. What is the firm's aftertax cost of debt if the applicable tax rate is 35 percent?

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