Instructions

This material consists of four assignments. Each assignment has a number of questions which have all been given an approximate weighting. The weightings are used in the overall exam assessment.

All the assignments must be completed independently of each other. The assignments come with an accompanying Excel file, which has a number of appendices containing data and sheets. In addition, there is a Word document containing all the questions.

Download:

The Word document with all the questions can be downloaded here.

The Excel file with all the appendices can be downloaded here.

Remember:

Save the files on your computer before you start to use them. Name the files with your own name. In the Word document, you must also complete the fields in the header.

Communication with anyone else during the exam is not permitted.

Assignment 1

Company analysis

Mascot International A/S (hereinafter referred to as Mascot A/S) is a Danish production company based in Silkeborg. The company was founded in 1982 and develops, manufactures and markets workwear and safety footwear. Mascot A/S’s main market is Western Europe, where sales to the main customer segments take place via an extensive dealer network. Customers primarily come from the construction industry, the craft trades, transport, logistics and industry.

Mascot A/S’s strategy is to produce high-quality products. The company manufactures the workwear etc. at its own factories in Vietnam and Laos to guarantee the quality of its 20,000 item numbers. A crucial part of the production process is testing and checking methods, materials and products to ensure compliance with Mascot A/S’s high quality standards.

In addition to product quality, the company also focuses on support, flexibility and high reliability of delivery.

In 2017, Mascot A/S posted turnover of DKK 870 million and a profit before tax of DKK 152 million. In the 2017 financial year, the group had an average of 2,300 employees.

This assignment comes with the following material:

Articles:

Internal material:

Extracts from the management’s review from the 2017 annual report for Mascot A/S

Key figures:

Prepared accounting and key figures for Mascot A/S for the years 2015 to 2017. See Appendix 1 of the Excel file.

Cash flow statement:

Adapted cash flow statement for Mascot A/S for the 2017 financial year. See Appendix 2 of the Excel file.

Questions 1.1 - 1.5

1.1 (5%)
Describe the factors which have influenced financial developments in Mascot A/S.

1.2 (5%)
Assess the competitive strategy used by Mascot A/S.

1.3 (25%)
Prepare an analysis of the profitability, earnings capacity, solvency and liquidity of Mascot A/S for the years 2015 to 2017 based on the key figures, articles and internal material.

The key figures can be found in Appendix 1 of the Excel file.

1.4 (5%)
Assess the overall development of Mascot A/S’s liquidity in the year 2017, and explain the key factors behind this development.

The cash flow statement can be found in Appendix 2.

1.5 (5%)
Give your assessment of Mascot A/S’s future prospects based on your answers to questions 1.1 - 1.4.

Assignment 2

Investment

Smart-Reolen A/S is a production company that specialises in manufacturing sturdy steel shelving. The modular shelving units measure 1 x 2 metres, and can be placed on top of each other, which makes them suitable for the high-storage systems being established by many companies.

Demand for the steel shelves has been growing sharply in recent years, to such an extent that Smart-Reolen A/S is having to turn away many orders. The production manager is therefore looking into the possibility of expanding production capacity. The company’s production hall has space for one more production line.

The purchase price of a new production line is expected to be DKK 8.4 million, plus installation costs of DKK 500,000. The machine has an expected service life of 10 years, after which it has a scrap value of DKK 1,000,000.

According to the sales manager’s calculations, the extra production capacity will mean that sales will increase by 12,000 steel shelves a year. The selling price of each shelf is DKK 269, and the variable unit costs are budgeted at DKK 125 per shelf. Annual capacity costs are expected to increase by DKK 350,000.

The company’s discount rate (required rate of return) is 9% per annum for this investment.

Questions 2.1 - 2.4

2.1 (5%)
Present the net cash flow of the proposed investment

The necessary information can be found in Appendix 3.

2.2 (5%)
Assess whether the investment is profitable.

2.3 (5%)
Make relevant calculations of sensitivity to changes to the assumptions on which the investment proposal is based.

2.4 (5%)
Assess how sensitive the investment proposal is to changes in the assumptions.

Assignment 3

Scarce capacity

TYSON A/S produces toecaps made from hardened steel which are sold to safety footwear manufacturers in Europe.

The company produces a wide range of different toecaps, for example TYSON-1 and TYSON-2, which are produced on the same machine. To manufacture both these toecaps, the company uses specially hardened steel which is extremely strong. The hardened steel is purchased from a supplier in Norway. For the next month’s production of its TYSON-1 and TYSON-2 toecaps, TYSON A/S has purchased 1,500 kg (1,500,000 grams) of hardened steel.

Producing one TYSON-1 toecap uses 40 grams of hardened steel, and the production time is 18 seconds. Producing one TYSON-2 toecap uses 46 grams of hardened steel, and the production time is 25 seconds.

The machine which is used to produce the TYSON-1 and TYSON-2 toecaps has a working capacity of 210 hours (756,000 seconds) a month.

TYSON-1 is designated x, and TYSON-2 is designated y. The inequalities for the limitations for the coming month look as follows:

Hardened steel: 40x + 46y ≤ 1,500,000

Production time: 18x + 25y ≤ 756,000

It is possible to sell a maximum of 40,000 TYSON-1 toecaps and 40,000 TYSON-2 toecaps a month.

The company has a contribution margin per toecap of DKK 3.10 for TYSON-1 toecaps and DKK 4.25 for TYSON-2 toecaps. The function for the total contribution margin is:

DB(x,y) = 3.10x + 4.25y

The Norwegian supplier can supply 100 kg (100,000 grams) of extra steel at short notice against an additional charge of DKK 900.

Questions 3.1 - 3.3

3.1 (5%)
Determine the number of TYSON-1 and TYSON-2 toecaps which must be produced in the coming month to achieve the biggest possible contribution margin taking into account the current limitations.

The necessary information can be found in Appendix 4.

3.2 (5%)
Calculate the total contribution margin which TYSON A/S achieves with the optimum combination of TYSON-1 and TYSON-2 toecaps. See question 3.1.

3.3 (5%)
Assess whether it is profitable for TYSON A/S to have the extra 100 kg of steel supplied at an additional cost of DKK 900.

Assignment 4

Budgeting

StofCompagniet A/S sells production equipment for the clothing industry. The finance department is preparing budgets for the third quarter of 2019.

The finance manager is basing the profit and loss budget and the liquidity budget on a number of assumptions which are described in Appendix 5.

StofCompagniet A/S is seeing a sharp rise in demand, and customers want their orders to be delivered quickly. Therefore, the company has decided that it is necessary to invest in a new warehouse.

Questions 4.1 - 4.3

4.1 (5%)
Prepare a monthly profit and loss budget for the third quarter of 2019 in Appendix 6.

The necessary information can be found in Appendix 5.

4.2 (10%)
Prepare a monthly liquidity budget for the third quarter of 2019 in Appendix 6.

The necessary information can be found in Appendix 5.

4.3 (5%)
Assess what StofCompagniet A/S can do to improve its liquidity.