Choose only TWO out of the three questions to answer.
Question 1
Your company has a strategic objective to expand and is considering manufacturing and selling a new piece of equipment in addition to its current products.
In order to produce this new piece of equipment your company would need to open a new factory but expects to sell the new equipment through its current distribution channels. In opening the new factory the company would incur significant new costs, including:
purchasing a new factory building and two new pieces of machinery before starting production of the new product;
a large marketing campaign at the start of production;
paying utilities and insurance for the new factory building on a monthly basis;
employing new managerial staff;
employing new staff on an hourly basis to operate the machinery; and
purchasing materials needed to make each item of the new product.
Requirement: Determine what additional information would be needed in order to effectively calculate break even analysis and net present value. Discuss how the above cost information could be used to calculate the break even analysis and net present value. Evaluate how break even analysis and net present value could be used by your company to decide whether to begin production of the new product. (1,500 words)
Question 2
The supplier of a part that your company uses to make one of its current main products has ceased trading and there are three potential alternative suppliers of this part in the area to choose from. You have access to each of these companies’ published financial information.
Requirement: Ratio analysis is a key method of interpreting financial accounts. Choose five ratios that can be used interpret published financial statements and discuss what they reveal about a company. Evaluate how useful your company would find these ratios as a potential customer in determining whether to use them as a supplier. (1,500 words).
Question 3
Your company is keen to budget more effectively to manage the risks of expansion and be more efficient. Your company holds a large amount of stock and raw materials in large warehouses which are costly to run.