Subject of Management

Degree of MSc in International Business

Degree Exam

Entrepreneurial Finance for SMEs, MGT5263

Mon, 04 December 2023, 09:30 - Tue, 05 December 2023, 09:30

Exam duration: 90 minutes

How to complete this exam:

Students should answer ONE question from Section A, and ONE question from Section B.

Instructions to students:

Read the exam student guidance below carefully.

For this exam, the required number of questions is TWO.

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SECTION A

Fast Fashion Limited operates as an online clothing retailer. Historically, the

company's core strategy involved manufacturing and directly selling its products to

consumers. To establish this direct-to-consumer sales channel, Fast Fashion Limited made substantial investments in building its own robust distribution network. This

network comprises a central warehouse, complemented by various regional sorting   offices. Orders originating from the central warehouse are dispatched to local sorting offices via trucks, from where they are further distributed to customers through a

network of local delivery agents.

Recognising Fast Fashion's exceptional logistical capabilities, a significant

development occurred six months ago when the parent company, owning multiple

high street stores, approached Fast Fashion Limited with an enticing proposition.

This involved the integration of additional brands onto Fast Fashion's website,

coupled with the responsibility of managing the entire order fulfillment process.

During a trial phase, Fast Fashion Limited opted to rent an auxiliary warehouse in

close proximity to its central facility to accommodate the third-party merchandise

associated with this partnership. Given the successful outcome of this trial period,

Fast Fashion Limited is now eager to fully incorporate this new collaboration into its  highly efficient distribution network. The proposed expansion entails an extension to its central warehouse at an estimated cost of £5,000,000. This expansion is

anticipated to yield annual savings of £200,000. Preliminary discussions with

potential financiers, including a lender and the parent company, have indicated their willingness to provide the necessary funding for this investment.

-     A lender is willing to extend the full £5,000,000 required for the expansion, offering a loan with an interest rate of 5.75% to be repaid over a 15-year

period, with annual installments.

-     The parent company has expressed its readiness to invest £5,000,000 in exchange for a 20% equity stake in Fast Fashion Limited.

Extracts from Fast Fashion Limited Annual Accounts

Income Statement to 31 October

Revenue                                  £12,700      £10,160

Costs of Goods Sold                £5,080        £4,267        

Gross Profit                              £7,620         £5,893

Marketing Expenses                £1,397         £1,321

Distribution Costs                     £2,667        £2,083

Administrative Costs               £1,905        £1,422        

Profit before tax                       £1,523        £939

Taxation                                  £305           £197           

Net Profit                                 £1,218        £742           

Statement of Financial Position as at 31 October

Non-current assets

Buildings                                         £5,742      £5,859

Vehicles                                          £651         £630      

£6,393      £6,489

Current assets

Inventory                                         £390          £430

Trade receivables                           £150          £0

Cash and bank                               £3,408      £2,890   

£3,948      £3,320

Total Assets                                   £10,341    £9,809   

Equity

Share Capital                                  £250          £250

Share Premium                              £750         £750

Reserves                                        £5,291      £4,865   

£6,291      £5,865

Non current liabilities

Debt                                               £3,459      £3,459   

Current liabilities

Trade payables                               £470         £420

Taxation                                         £121         £65        

£591         £485

Equity and Total Liabilities              £10,341    £9,809   

QUESTION ONE

Conduct financial ratio analysis on the above accounting information to assist in

making a recommendation on which financing option (loan or equity stake sale) Fast Fashion Limited should choose for the warehouse extension project.

Justify your recommendation with quantitative and qualitative arguments. (70%)

SECTION B

You are tasked with crafting an article for magazine pitched at entrepreneurs. The

objective of this piece is to enlighten readers on one of the specified topics below. It should cater to a broad audience, from those thinking about starting a business to

individuals already established. You are encouraged to adopt a suitable writing style,

explain any technical terms, incorporate illustrative examples, and maintain a coherent narrative throughout.

You are also encouraged to be creative with this task.

QUESTION TWO

Topic: Budgets

QUESTION THREE

Topic: Cashflow statement

QUESTION FOUR

Topic: Management Accounting Variance Analysis (30%)

(PAPER TOTAL: 100%)