London MSC /MBA Finance

School of
Business &
Finance
(LSBF)
Module Corporate Finance

Assignment Type Written Report

Word Limit 2500+-10%
Weighting 50 %
Student Cohort Intake 6
Issue Date 2 March 2011
Submission 12 April 2011
Date
Feedback Date
Issued by Augustine Entonu
(Assessor)
Internal Verifier Dave Marshall
Plagiarism When submitting work for assessment, students should be aware of the LSBF guidance and
regulations in concerning plagiarism. All submissions should be your own, original work.

You must submit an electronic copy of your work. Your submission will be
electronically checked.

Harvard The Harvard Referencing System must be used. The Wikipedia website must not be
Referencing referenced in your work.

Learning On successful completion of this assignment you will be able to:

Outcomes
Knowledge

1 Identify principles and trends in the corporate finance.

2 Determine and evaluate the nature of different source of finance.

3 Demonstrate deep and systemic knowledge in the sphere of corporate finance

development.

Thinking skills

4 Critically evaluate the economic benefit of various types of finance

5 Reflect on the roles, skills and responsibilities needed for effective management of
corporate finance.

6 Discuss in context the linkage between current theory and practice and be able to
organise appropriate evidence and reasoning to produce a balanced conclusion

7 Demonstrate problem solving and analytical approaches to facilitate effective financial

decision-making

Subject-based practical skills

8 Demonstrate effective approaches to analyzing corporate finance structure

 9 Possess the ability to plan and implement tasks at professional level; make decisions in
complex and unpredictable context of using rational decision-making approach

Skills for life and work (general skills)

10 Present information and communicate effectively in written or oral form, at an

appropriate level including the acknowledgement and referencing of sources and also
capacity for independent and self managed learning

11 Contextualise the knowledge, competencies and practical skills from the module and
apply this to the real world project contexts and activities

Grading Criteria Please see separate Assignment Grading Criteria Autumn 2011 sheet for this Assignment.

Your Task Wonderland Confectionaries Inc. owns a successful chain of Restaurants and the
company is considering diversifying its activities by investing in theme park business
through the construction of a theme park. The theme park would have a mixture of
family activities and thrills. Wonderland has just spent £400,000 on market research
into the theme park, and is encouraged by the findings.
The following details apply:

1. The theme park is expected to attract an average of 20,000 visitors per

day for at least five years
2. The price of admission to the theme park is expected to be £25 per
adult and £15 per child. 70% of visitors are forecast to be children. In
addition to admission revenues, it is expected that the average visitor
will spend £10 on food and drinks,
3. All costs and receipts (excluding maintenance and construction costs
and the realisable value) are shown at current prices;
4. The company expects revenue to rise by 6% from current on a
compound bases
5. The theme park would cost a total of £500 million and could be
constructed and working after 1 year of investment .Half of the £500
million would be payable immediately, and half in one year’s time
without the effect of inflation due to a signed agreement. In addition
working capital of £60 million will be required from the beginning of the
project and is expected to increase year on year in line with the inflation
factor of the revenue (6%)
6. The non-current asset has an after tax realisable value between £100
million and £200 million after five years of the project.
7. Operation costs (excluding labour (please see below) are expected to
be £17 million in the first year of operation, increasing by 5% per year.
8. Insurance costs per annum are £3 million, of which £2 million per year
is due directly to the theme park project and Insurance cost will
increase in line with the Consumer price i.e. 6% per annum
 compounded annually
9. labour cost will be increased by 7% each year on compounding basis
and the project would require 1000 employees with a cost of £35 million
per annum (at current prices).
10. The dual use of existing advertising campaigns restaurant theme park
will save a £3 million per year in advertising expenses.
11. The Theme park will be operated 7 days a week for 365 days a year
and will be maintained during the night.

Wonderland has no previous experience of theme park management. However as

part of the finance team, you have investigated the current risk and financial structure
of its closest theme park competitor, Alice Limited. Details are summarised below.

ALICE LIMITED, SUMMARISED BALANCE SHEET

£m
Non-current assets (net) 1,710
Current assets 630
Less current liabilities (570)
1,770
Financed by:
£1 ordinary shares 500
Reserves 700
1200
Medium and long term debt 570
1,770
After carrying out preliminary search for financing and investigating the industry
further, your team has been able to gather the following information:
a) Wonderland can procure a loan of £100 million loan at 8% fixed rate to provide the
necessary finance for the theme park.
b) £300 million of the investment will attract 20% per year capital allowances on straight
line basis while the remainder will not, and tax is paid in the year it is incurred.
c) Corporate tax is at a rate of 35% and this is applicable for both Alice and
Wonderland
d) The expected market return on equity is 12% and the risk free rate 3.5%.
e) Wonderland’s current weighted average cost of capital is 9%.
f) Wonderland’s market weighted gearing if the theme park project is undertaken is
estimated to be 80% equity and 20% debt.
g) Wonderland’s equity beta is 0.80.
h) The current share price of Wonderland is 200 pence, and of Alice 400 pence.
i) Alice’s equity beta is 1.50
The expected return and the risk free rate are all nominal and as such any cost of
capital derived will be a nominal cost of capital

REQUIRED:
You are required to prepare a report analysing whether or not Wonderland should
undertake the investment in the theme park.
Your report should cover the following areas which have been indicated in your firm’s
investment manual:
1. Net present value and any relevant advice to management on salient issues to be
considered (60 marks)

2. A suggestion of financial and non-financial issues that the management of

Wonderland need to be aware of and suggestions on how to manage these issues.
(20 marks)

3. You have decided to take an initiative and include in your report a brief outline of the
use of real options in project appraisal for management and as such will prepare an
outline on the following options and how they may be applicable to the Wonderland
 theme park project under appraisal

• Abandonment
• Expansion
• Flexibility
• Selling
• And any other relevant option
(20 marks)

Guidelines

Indicative UK % Characteristics
Grade Marks

A 70%+
 Very high standard of critical analysis using

appropriate conceptual frameworks

 Excellent understanding and exposition of
relevant issues

 Clearly structured and logically developed
arguments

 Good awareness of nuances and complexities

 Substantial evidence of well-executed
independent research

 Excellent evaluation and synthesis of source
material

 Excellent use of relevant data and examples,
all properly referenced

Distinction
70% and
above
B 60 - 69%  High standard of critical analysis using
appropriate conceptual frameworks

 Clear awareness and exposition of relevant
issues

 Clearly structured and logically developed
argument

 Awareness of nuances and complexities

 Evidence of independent research

 Good evaluation and synthesis of source
material

 Good use of relevant data and examples, all
properly referenced

C 50 – 59%
 Uses appropriate conceptual frameworks

 Attempts analysis but includes some errors
and/or omissions

 Shows awareness of issues but no more than
to be expected from attendance at classes

 Arguments reasonably clear but
underdeveloped

 Insufficient evidence of independent research

 Insufficient evaluation of source material

 Some good use of relevant data and
examples, but incompletely referenced
 D 40 – 49%
 Adequate understanding of appropriate
conceptual frameworks

 Answer too descriptive and/or any attempt at
analysis is superficial, containing errors and/or
omissions

 Shows limited awareness of issues but also
some confusion

 Arguments not particularly clear

 Limited evidence of independent research and
reliance on a superficial repeat of class notes

 Relatively superficial use of relevant data,
sources and examples and poorly referenced

UOW Pass
Mark = 40%
E 30 – 39%
 Weak understanding of appropriate conceptual
frameworks

 Weak analysis and several errors and
omissions

 Establishes a few relevant points but
superficial and confused exposition of issues

 No evidence of independent research and poor
understanding of class notes

 Poor or no use of relevant data, sources and
examples, and no references

F 0 – 29%
 Very weak or no understanding of appropriate

conceptual frameworks

 Very weak or no grasp of analysis and many
errors and omissions

 Very little or no understanding of the issues
raised by the question

 No appropriate references to data, sources,
examples or even class notes

Note This Assignment Briefing Sheet Autumn 2011 is available on http://docs.google.com/ for
you to view and print off at a type size more convenient to you.
LSBF Student Name Course Unit Title / Code Type of Assessment

Postgraduate Assessment Name of Student Text

Feedback Sheet □ Staff Assessment
Date of Assessment Student ID Course Unit Level □ Self Assessment
Date AA 000000 7 □ Peer Assessment
Type of Assessment Course and College Assignment / Project Title
□ Formative
Text Course Text
□ Summative
College

The feedback you are given will General comments and advice on how to improve your work in the future
be informed by each of the
marking criteria overleaf. Text
Marks are arrived at through
markers’ holistic judgement,
informed by the criteria

The feedback you receive

should help you to understand
your overall level of
performance for the
assessment. Feedback should
help you plan and execute work
as well as understand how your
mark was arrived at.
 London School of Business & Finance
Postgraduate Marking Criteria

Criteria Level of Achievement Indicators

Fail Pass
0–29% 30–39% 40-49% 50-59% 60-69% 70+%
1 Research Little or no evidence of Information presented Adequate research has Information is accurate Well informed Extensive independent
Systematic appropriate research does not relate been carried out and and from a range of judgements made of research, accuracy, familiarity
identification and sufficiently to the task; appropriate information sources, with evidence the relative value of with the material, and sound
investigation of there may be evidence has been gathered and of some analysis and connected information judgments
appropriate sources of rudimentary research documented from evaluation from a wide range of
readily available academic sources
sources applying
standard techniques

0–29% 30–39% 40-49% 50-59% 60-69% 70+%

2 Analysis Little or no evidence of Judgments (with or Key elements within Uses examination and Judgements are astute Evidence of analysis which
Examination and analytical engagement without complete data) relevant information are interpretation of and well supported; potentially contributes new
interpretation of are not sound; critiques identified, but may lack sources to make sound able to deal with ideas, processes or
resources are not well argued; accurate interpretation judgments ; shows complex issues both knowledge to the field or is
response to complex and analysis critical awareness of systematically and ground breaking in a way that
issues is not systematic current problems creatively; critiques are would be recognized as valid
or creative insightful and well by experts in the field
substantiated; offers
new insights

0–29% 30–39% 40-49% 50-59% 60-69% 70+%

3 Subject Knowledge Inaccurate and/or Fragmentary and/or Evidence of Knowledge is accurate Systematic and Brings a valid individual
Understanding and incomplete knowledge partial knowledge of the understanding key and current within the extensive knowledge, understanding to concepts
application of subject of the subject field and subject and its aspects of the subject field, and applied at the forefront of their and knowledge in the field
knowledge and its development development context, in current appropriately field of study, perhaps Where appropriate, able to
underlying principles debates and/or informed by related or propose original ideas or
historical background. external fields, used hypotheses
creatively

0–29% 30–39% 40-49% 50-59% 60-69% 70+%

4 Experimentation Unable to identify Exploration of methods Operates within familiar Decision making is Effective decision Risk taking shows a profound
Problem solving, risk problems; does not or concepts is not and well established based on sound making in complex and and precise understanding of
taking, experimentation understand the sufficient to resolve ideas, processes, judgement of available unpredictable the nature of the field, and
and testing of ideas purpose of risk taking barriers and/or move media and/or materials; options; risk is situations; progresses the field, perhaps
and materials in the or exploration of practice forward some evidence of managed appropriately; demonstrates in an individually distinctive
realisation of concepts alternatives exploration of ideas applies established originality in tackling way
and concepts techniques creatively in and solving problems;
the discipline approach consistently
moves practice
forwards

0–29% 30–39% 40-49% 50-59% 60-69% 70+%

5 Technical Execution shows very Techniques are limited Skills are adequate to Skilled command of Discernment and Idea and technique are
Competence limited command of or rudimentary in communicate ideas; conventions and judgement are evident. unified. Discernment and
Skills to enable the techniques and poor selection or skill accepted conventions procedures. Technical Idea and technique are judgement are evident.
execution of ideas judgement and procedures are skills facilitate practice, unified. Breadth of Technical Skills may have
appropriate to the usually applied conceptual techniques adopted contributed to conceptual
medium development and the may be a feature advances
communication of ideas

0–29% 30–39% 40-49% 50-59% 60-69% 70+%

6 Communication and Ineffective use of Partial lack of Conventions and Able to communicate Communication is Communication shows an
Presentation visual/ oral/ written awareness and standards are applied; own conclusions and persuasive and exceptional and integrated
Clarity of purpose; communication observance of structure is clear; explain and summarise compelling; diverse understanding of the topic and
skills in the selected conventions in the conventions and information selection existing work clearly, in audience needs are audience needs
media; awareness and production and standards; lack of and organisation shows appropriate media to accounted for;
adoption of appropriate presentation of ideas clarity in structure awareness of audience specialist and non message and medium
conventions; sensitivity selection and requirements and specialist audiences are unified with
to the needs of the organisation of preferences personal style
audience information; lack of
awareness of audience

0–29% 30–39% 40-49% 50-59% 60-69% 70+%

7 Personal Consistent lack of Evidence of reflection Evidence that reflection Demonstrable capacity Takes full responsibility Evidence of strong sense of
and Professional evidence of reflection and planning for and planning have led to continue to advance for own learning and motivation and commitment to
Development or planning for learning. learning not to increased subject their knowledge and development through personal and professional
Management of Little or no awareness consistently engagement and understanding, and to iterative cycles of well development, explicitly and
learning through of personal strengths progressed. Incomplete commitment. develop new skills to a articulated purposeful clearly communicated and
reflection, planning, self and weaknesses in awareness of personal Developing an high level analysis and planning, evidenced
direction, subject relation to task strengths and awareness of strengths supported by extensive
engagement and weaknesses and weaknesses evidence
commitment

0–29% 30–39% 40-49% 50-59% 60%60-69% 70+%

8 Collaborative and / or Shows little accurate Insufficient Awareness of main Shows self-direction Regularly shows self- Makes sound decisions
Independent knowledge of related understanding of standards required of and/or originality in direction and originality readily in complex and
Professional Working profession; is professional life; relevant profession. tackling and solving in tackling and solving unpredictable situations;
Demonstration of unproductive working struggles to plan and Able work both problems; can plan and problems; shows operates both autonomously
suitable behaviour for alone; does not complete work alone; collaboratively and implement tasks at a initiative and personal and collaboratively as a
working in a collaborate effectively collaborates reluctantly; independently professional or responsibility; professional; a consistently
professional context with others behaviour may be equivalent level; able to consistently plans and strong contributor to any team,
alone, or with others unsupportive of others work effectively in implements tasks at a in any role
diverse teams professional or
equivalent level,
autonomously or
collaboratively; able to
work effectively in
diverse teams, in
multiple roles