Reference no: EM131715446
• Financial Management
You are required to complete a financial planning, budgeting and cash management exercise to demonstrate relevant knowledge of the interpretation of financial information and the management of financial resources.
a. Scenario:
You are the treasurer of a local football club. You currently rent football pitches, changing rooms and accommodation from your local Council. You are responsible for the running of the facility. You have successfully bid to the FA foundation for funding for a new club house. However, the latest cost estimate of the facility is £1,500,000 but the grant awarded is only £1,250,000. You could borrow to fund the cost of the new facility which you will repay in equal instalments over 20 years (annual interest would be charged at 5%). The new facility would be more energy efficient allowing you to save 10% on energy costs. The Council has also offered to allow the club to have an additional football pitch which could be rented out. There are currently 4 teams of 16 male players, all of whom pay £200 per year annual subscription to the club. The club also offers 8 sessions of junior training each week (including Saturdays and Sundays) at which 12 boys train, each of whom pay £5.00 per session for 30 weeks of the year.
Given that the Council will not need to replace the clubhouse, once built the Club would only pay a peppercorn rent of £500.00 per year for 20 years compared to the current rental costs of £10,000 per year. The new facility would allow you to set up a women's football club to complement the current adult and juniors' football as there would be new changing facilities. The club expects that at least one women's team should be formed with an estimated membership of 20 players all of whom will pay an annual subscription of £200. There would also be the opportunity to offer an after school training session for girls for a maximum of 12 girls who would each pay £5.00 per week during the season (30 weeks).
The current running costs associated with the old facility are as follows:
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£
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Annual rental
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10,000
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Heating and lighting costs
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5,000
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Water charges
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2,500
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Annual maintenance costs
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5,000
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22,500
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(b) Assignment:
1. Explain which financial appraisal technique you would use and why.
2. Say which option (do nothing or borrow to fund the new facility) you would recommend to the management committee. Provide explanations as to why this is the preferred option and show your financial workings.
3. Identify the risks behind the proposal and how they might be managed.
4. Provide a budget for the new facility for the first year of operation.