MSIN0045 Finance I (Financial Analysis)
SAMPLE Examination Paper
2021/22

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MSIN0045: Finance I (Financial Analysis)
2
MSIN0045 2021/22
Examination length: THREE (3) hours
There are TWO (2) sections to the examination paper. ALL questions in this paper
are compulsory.
Section A consists of TWO (2) questions. This section is worth EIGHTY (80)*
marks.


Section B consists of ONE (1) question. This section is worth TWENTY (20)* marks.

*The marks here are indicative for the purposes for this sample paper. Actual exam paper will have
weightings/marks that are specific to the requirements of its questions.


A discount table is provided.
Note: Within the mark allocation of discursive questions, there are sub-allocations of
marks reflecting academic judgement applied by the marker/assessor, based on the
marker/assessor’s perception of logic, rationale, thrust, and communication.

You are advised to allocate your time between the sections in proportion to the
marks available.

Module Leader: Lynsie Chew
Internal Assessor: Barry McCarthy










TURN OVER
MSIN0045: Finance I (Financial Analysis)
3
MSIN0045 2021/22
SECTION A
This section consists of TWO (2) compulsory questions. Candidates should attempt
ALL parts of ALL questions. This section is worth EIGHTY (80)* marks.
* The marks here are indicative for the purposes for this sample paper. Actual exam paper will have
weightings/marks that are specific to the requirements of its questions.
Note from Lynsie: the scenario below should look very familiar to you as we did it in class together!
Guide solution already published on Moodle and worked through during relevant seminar. This
section of the exam paper is likely to have a scenario from which you are to draw out relevant data to
help you address the specific question requirements.
Chesterfield Wanderers is a professional football club that has enjoyed considerable
success in recent years. As a result, the club has accumulated £10 million to spend on its
further development. The board of directors is currently considering two mutually exclusive
options for spending the funds available.
The first option is to acquire another player. The team manager has expressed a keen
interest in acquiring Basil (‘Bazza’) Ramsey, a central defender, who currently plays for a
rival club. The rival club has agreed to release the player immediately for £10 million if
required. A decision to acquire ‘Bazza’ Ramsey would mean that the existing central
defender, Vinnie Smith, could be sold to another club. Chesterfield Wanderers has recently
received an offer of £2.2 million for this player. This offer is still open but will only be
accepted if ‘Bazza’ Ramsey joins Chesterfield Wanderers. If this does not happen, Vinnie
Smith will be expected to stay on with the club until the end of his playing career in five
years’ time. During this period, Vinnie will receive an annual salary of £400,000 and a loyalty
bonus of £200,000 at the end of his five-year period with the club. Assuming ‘Bazza’
Ramsey is acquired, the team manager estimates that gate receipts will increase by £2.5
million in the first year and £1.3 million in each of the four following years. There will also be
an increase in advertising and sponsorship revenues of £1.2million for each of the next five
years if the player is acquired. At the end of five years, the player can be sold to a club in a
lower division and Chesterfield Wanderers will expect to receive £1 million as a transfer fee.
‘Bazza’ will receive an annual salary of £800,000 during his period at the club and a loyalty
bonus of £400,000 after five years.
The second option is for the club to improve its ground facilities. The west stand could be
extended and executive boxes could be built for businesses wishing to offer corporate
hospitality to clients. These improvements would also cost £10 million and would take one
year to complete. During this period, the west stand would be closed, resulting in a reduction
of gate receipts of £1.8 million. However, gate receipts for each of the following four years
would be £4.4 million higher than current receipts. In five years’ time, the club has plans to
sell the existing grounds and to move to a new stadium nearby. Improving the ground
facilities is not expected to affect the ground’s value when it comes to be sold. Payment for
the improvements will be made when the work has been completed at the end of the first
year.
Whichever option is chosen, the board of directors has decided to take on additional ground
staff. The additional wages bill is expected to be £350,000 a year over the next five years.
The club has a cost of capital of 10%. Ignore taxation.
[Adapted from Atrill and McLaney] CONTINUED
MSIN0045: Finance I (Financial Analysis)
4
MSIN0045 2021/22
Question 1 [35 marks]*
* The marks here are indicative for the purposes for this sample paper. Actual exam paper will have
weightings/marks that are specific to the requirements of its questions.
Note from Lynsie: For any numerical work, you may use Excel or handwrite or type out your
calculations. That said, typed work is the strong preference. Your full workings should be provided in
your final submission. You should copy and paste from Excel or type directly into the word doc or
insert photos of your handwritten workings as JPEG/PNG/image files into the word doc. Where a
discount table is provided it MUST be used as per the instructions!!

a) Prepare a detailed statement of incremental cash flows (relevant costs) for each
of the two options in the scenario.

[8 marks]


b) Evaluate the suitability of each of the two options using the following three
methods:
i. Payback period [2 marks]
ii. Net Present Value [3 marks]
iii. Internal Rate of Return [2 marks]

You must show your workings in full. There is a discount table further
below which must be used.

c) Based upon your calculations immediately above, provide a commentary advising
as to which of the two options should be selected. You should also include a critical
overview of the limitations of these calculations as well as consideration of other
relevant contextual factors which could influence the decision to go ahead with
either option or not.
[20 marks]

DISCOUNT FACTOR TABLE


Discount rates
Periods
(n)
10% 12% 14% 16% 18% 20% 25%
1 0.909 0.893 0.877 0.862 0.847 0.833 0.800
2 0.826 0.797 0.769 0.743 0.718 0.694 0.640
3 0.751 0.712 0.675 0.641 0.609 0.579 0.512
4 0.683 0.636 0.592 0.552 0.516 0.482 0.410
5 0.621 0.567 0.519 0.476 0.437 0.402 0.328

[QUESTION 1 TOTAL 35 MARKS]

END OF QUESTION 1

MSIN0045: Finance I (Financial Analysis)
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MSIN0045 2021/22
Question 2 [45 marks]*
* The marks here are indicative for the purposes for this sample paper. Actual exam paper will have
weightings/marks that are specific to the requirements of its questions.
Note from Lynsie: Here are another set of familiar exercises which we have done together in class!
Guide solution already published on Moodle and worked through during relevant seminar.
For any numerical work, you may use Excel or handwrite or type out your calculations. That said,
typed work is the strong preference. Your full workings should be provided in your final submission.
You should copy and paste from Excel or type directly into the word doc or insert photos of your
handwritten workings as JPEG/PNG/image files into the word doc.
The following data is available for a company called Threads Ltd which manufactures nuts
and bolts.
Income statements for the year ended 31 Dec


Year before
last Last year
£000 £000
Revenue 1,180 1,200
Cost of sales 680 750
Gross profit 500 450
Operating expenses 200 208
Depreciation 66 75
Operating profit 234 167
Interest 0 8
Profit before tax 234 159
Tax 80 48
Profit for the Year 154 111

Statements of Financial Position as at 31 Dec


Year before
last
Last
year
£000 £000

Non-current assets
PPE 702 687

Current assets
inventories 148 236
trade receivables 102 156
cash 3 4
253 396

Total Assets 955 1,083

Equity
MSIN0045: Finance I (Financial Analysis)
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MSIN0045 2021/22
Ordinary share cap (£1) 500 500
Retained earnings 256 295
756 795
Non-current liabilities
Bank loan 0 50

Current liabilities
Trade payables 60 76
Other payables and accruals 18 16
Tax 40 24
Overdraft 81 122
199 238

Total Equity + liabilities 955 1,083

Note: Dividends were paid on ordinary shares of £70,000 and £72,000 in respect of 2018
and 2019,respectively
[Adapted from Atrill and McLaney]

a) Using the two-year financial data provided above, conduct a ratio analysis based
upon year-end figures by calculating the following ratios for each of the two
years:
i. ROCE.
ii. Operating profit margin.
iii. Gross profit margin.
iv. Current ratio.
v. Acid test ratio.
vi. Settlement period for trade receivables.
vii. Settlement period for trade payables.
viii. Inventories turnover period.

You must show your workings and work to 2 decimal places.
[8 marks]


b) Comment on the performance of Threads Ltd from the viewpoint of a business
considering supplying a substantial amount of goods to Threads Ltd on usual trade
credit terms.
[10 marks]



Question 2 continues on next page…
MSIN0045: Finance I (Financial Analysis)
7
MSIN0045 2021/22
c) Chen plc has provided you with the most recent two years’ financial data as
follows:

Income statements Last year This year
£m £m
Revenue 207 153
Cost of sales (101) (76)
Distribution expenses (22) (20)
Administrative expenses (20) (28)
Interest payable (4) (4)
Taxation (16) (6)
Profit for the year 44 19

Statements of Financial Position Last year This year
Non-current assets
PPE 172 186
Current assets
Inventories 24 25
Trade receivables 26 25
Cash at bank 19 -
Equity
Ordinary share capital 100 100
Retained earnings 56 57
Non-current liabilities
Loan notes (10%) 40 40
Current liabilities
Overdraft - 2
Trade payables 37 34
Taxation 8 3
Included in Cost of sales and the other operating expenses are depreciation charges for
each year: £16m last year, and £22m this year. There were no disposals of non-current
assets. Dividends of £18m were paid in each year.
[Adapted from Atrill and McLaney]
Required: Prepare a statement of cash flows using the indirect method for ‘this
year’.
You must show your workings and show each individual item within the
statement. Do not group figures together. [7 marks]

d) Based upon your derived statement of cash flows for Chen plc, comment on what
the statement reveals about the business.
[10 marks]



[QUESTION 2 TOTAL 35 MARKS]
END OF QUESTION 2

TURN OVER
MSIN0045: Finance I (Financial Analysis)
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MSIN0045 2021/22
SECTION B

This section contains ONE (1) compulsory question.
Note from Lynsie: this section of the exam paper will be theory-based with an essay-type
answer required. The following is indicative of the nature of this type of question. All and any
topic areas from the syllabus are at liberty to be assessed.
* The marks here are indicative for the purposes for this sample paper. Actual exam paper will have
weightings/marks that are specific to the requirements of its questions.

Question 3 [20 marks]*
A colleague of yours was due to attend a briefing seminar covering the topic: Budgeting:
what it does, what it covers, and the factors you should consider in designing, implementing,
and operating a good budgeting system. Unfortunately, your colleague went out socialising
the night before, returned home late, overslept, and missed the briefing.

Required:
Explain what a budgeting system does, what it covers, and the factors to be considered
when designing, implementing, and operating a good budgeting system.

[20 marks]

[QUESTION 3 TOTAL 20 MARKS]


END OF QUESTION 3

END OF PAPER