UNIVERSITY OF BOLTON OFF CAMPUS DIVISION MALAWI INSTITUTE OF MANAGEMENT MASTER OF SUPPLY CHAIN MANAGEMENT SEMESTER 1 EXAMINATION 2016/2017

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1 OCD012 UNIVERSITY OF BOLTON OFF CAMPUS DIVISION MALAWI INSTITUTE OF MANAGEMENT MASTER OF SUPPLY CHAIN MANAGEMENT SEMESTER 1 EXAMINATION 2016/2017 FINANCE FOR MANAGERS MODULE NO. EBU7005 Date: 11 th November, 2016 Time: 3 hours INSTRUCTIONS TO CANDIDATES: There are five (5) questions on this paper: one (1) in Part A and four (4) in Part B. You must answer four (4) questions as follows: Answer question one (1) in Part A. Answer any three (3) questions in Part B. All questions in Part B carry equal marks. Marks for parts of question are indicated in parenthesis. Discount tables are provided.

2 PART A QUESTION 1 Page 2 of 5 In deciding what investment programs to adopt for implementation, a number of factors are considered in order to increase the income of the shareholders. In particular, payback method is preferred by a number of management accountants/analysts based on its advantage. However, it is also argued that payback period method has a number of flaws despite acclaimed advantages. In view of these, cost benefit analysis is preferred. a) Critically evaluate at least three investment decision-making tools in the light of your investment decision and outline advantages and disadvantages of the decision. (20 Marks) b) Justify one decision making tool for deciding which project to adopt in order to increase wealth? c) Critically evaluate the usefulness of the profitability index as means of choosing between projects to implement. (10 Marks) d) Explain with an example, why companies do not always invest in profitable projects. (Total 40 Marks)

3 PART B QUESTION 2 Page 3 of 5 Cusson s Plc, a major food manufacturer, is considering the construction of a distribution depot, strategically located to provide an improved service to its key supermarket customers. It is anticipated that the construction cost would be 2m. The expected increase in accounting profits as a result of this investment are shown below (the company s depreciation policy for this class of capital investment is the straight line method). The most recent set of accounts showed that the business discounts its capital projects at 10%. Payback on investment is normally sought within three years. Year Profit/ (loss), ,000 Required: Calculate the accounting rate of return Calculate the payback period Calculate the net present value, based on the cost of capital Calculate the internal rate of return (2 marks) (1 marks) (3 marks) (3 marks) Critically evaluate the arguments for the choice of net present value as the best method for investment appraisal, and explain why in practice, senior managers often choose the internal rate of return method as the preferred tool for investment decisions, discussing why there is sometimes a contradiction when comparing both methods. (11 marks)

4 QUESTION 3 Page 4 of 5 As a procurement manager, you have been asked to prepare a budget for your department. Briefly review the stages that are involved in the preparation and approval of the budget, then critically examine the budgeting process that you have described, identifying and discussing its key strengths and weaknesses. QUESTION 4 (20 marks) Critically review the sources of finance available to businesses. Discuss the implications for choosing one particular source rather than another? Why might you want to include a mixture of sources? (20 Marks) QUESTION 5 In the balance sheet statement, there are a number of indicators to show that the business is healthy in carrying out its operations. Such measures include net working capital, net assets and shareholder equity. a) Explain the difference between current assets and liabilities and long term assets and liabilities. Justify the use of current or long term indicators for analysing a liquidity situation. b) Assess the impact of increase in intangible assets and the decline in current liability levels on shareholder capital? (6 Marks) c) Evaluate three components of shareholder net worth. (9 Marks) (Total 20 Marks)

5 QUESTION 6 Page 5 of 5 The limitations of managing solely with financial measures, however, have been known for decades (Kaplan and Norton, 2001:87). a. Critically evaluate the requirement for non-financial reporting within a modern business environment (10 marks) b. Critically analyse the challenges of implementing a non-financial performance measurement system (10 marks) END OF QUESTIONS