Published September 3rd 2022

Assessment (non-exam) Brief

Module code/name MSIN0021 Finance II (Investement Management)
Module leader name Barry McCarthy
Academic year 2022/23
Term 1
Assessment title Coursework (40%)
Individual/group assessment Group

Submission deadlines: Students should submit all work by the published deadline date and time. Students
experiencing sudden or unexpected events beyond your control which impact your ability to complete assessed
work by the set deadlines may request mitigation via the extenuating circumstances procedure. Students with
disabilities or ongoing, long-term conditions should explore a Summary of Reasonable Adjustments.
Return and status of marked assessments: Students should expect to receive feedback within one calendar month
of the submission deadline, as per UCL guidelines. The module team will update you if there are delays through
unforeseen circumstances (e.g. ill health). All results when first published are provisional until confirmed by the
Examination Board.
Copyright Note to students: Copyright of this assessment brief is with UCL and the module leader(s) named above. If
this brief draws upon work by third parties (e.g. Case Study publishers) such third parties also hold copyright. It must
not be copied, reproduced, transferred, distributed, leased, licensed or shared any other individual(s) and/or
organisations, including web-based organisations, without permission of the copyright holder(s) at any point in time.
Academic Misconduct: Academic Misconduct is defined as any action or attempted action that may result in a
student obtaining an unfair academic advantage. Academic misconduct includes plagiarism, obtaining help
from/sharing work with others be they individuals and/or organisations or any other form of cheating. Refer to
Academic Manual Chapter 6, Section 9: Student Academic Misconduct Procedure - 9.2 Definitions.
Referencing: You must reference and provide full citation for ALL sources used, including articles, text books, lecture
slides and module materials. This includes any direct quotes and paraphrased text. If in doubt, reference it. If you
need further guidance on referencing please see UCL’s referencing tutorial for students. Failure to cite references
correctly may result in your work being referred to the Academic Misconduct Panel.
Content of this assessment brief
Section Content
A Core information
B Coursework brief and requirements
C Module learning outcomes covered in this assessment
D Groupwork instructions (if applicable)
E How your work is assessed
F Additional information

Published September 3rd 2022

Section A: Core information

Submission date 28/11/2022
Submission time 15:00 UK Time
Assessment is marked out of: 100
% weighting of this assessment
within total module mark
40%
Maximum word count/page
length/duration
2 pages for calculations plus 3,000 words.
Footnotes, appendices, tables,
figures, diagrams, charts included
in/excluded from word count/page
length?
Footnotes, tables, graphs, diagrams, calculations, appendix are
excluded from the word limit.

An appendix should only include calculations not
paragraphs/narrative which form interpretation of
calculations.
Bibliographies, reference lists
included in/excluded from word
count/page length?
Title page, table of contents, any bibliography/reference
list/appendices are excluded from the word limit
Penalty for exceeding word
count/page length
Penalty for exceeding word count will be a deduction of 10
percentage points, capped at 40% for Levels 4,5, 6, and 50% for
Level 7) Refer to Academic Manual Section 3: Module
Assessment - 3.13 Word Counts.

Penalty for late submission Standard UCL penalties apply. Students should refer to Refer to
https://www.ucl.ac.uk/academic-manual/chapters/chapter-4-
assessment-framework-taught-programmes/section-3-module-
assessment#3.12
Submitting your assessment The assignment MUST be submitted to the module submission
link located within this module’s Moodle Assessment section by
the specified deadline.
Anonymity of identity. Normally, all
submissions are anonymous unless
the nature of the submission is such
that anonymity is not appropriate,
illustratively as in presentations or
where minutes of group meetings
are required as part of a group work
submission
The nature of this assessment is such that anonymity is not
required.


Published September 3rd 2022

Section B: Assessment Brief and Requirements
L’Arteta plc

The most recent statement of financial position of L’Arteta plc, a well-established food and clothing
retailer, is summarised below:

ASSETS £m
Current Assets 2,400
Non-current Assets 5,600
Total Assets 8,000

LIABILITIES & EQUITY
Current Liabilities 2,500
5% debentures (par value £100) 1,000
Equity
- Ordinary Shares Capital (par value 50 pence) 500
- Retained Earnings 4,000
Total Liabilities & Equity 8,000

The company’s debentures, which pay an annual coupon of 5%, have seven years remaining until their
maturity, when they will be redeemable at par. The debentures are currently trading at a market price of
£98.50.

The annual dividend paid by the company on its ordinary shares has grown from 15 pence per share nine
years ago to the present level of 21 pence per share and is expected to continue to grow at the same rate
for the foreseeable future. The company’s ordinary shares are currently trading at a price of 257 pence,
ex-dividend.

L’Arteta plc is considering two alternative investment projects, one for expansion of its existing business,
another for diversification into petroleum products. Owing to capital constraints only one of these
projects is to be selected. The proposed petroleum products project promises higher earnings than could
be achieved through expansion of the company’s existing lines of activity. L’Arteta plc’s Managing
Director, who believes that maximisation of profits must be the fundamental objective of the company, is
therefore strongly in favour of this diversification project. She has instructed the treasury team to
calculate the company’s weighted average cost of capital based on the information provided above, and
use it to evaluate the petroleum products project for which the following estimates have been drawn up:

• The initial capital investment required would be £2 billion, and the residual value of this
investment at the end of the project’s life of six years is expected to be 5% of the original cost.
• A bill for £500,000 from the consultancy firm that was engaged to conduct the market
research and feasibility study for the new project has been received but is yet to be paid.
• After allowing for inflation, revenue in the first year following the investment is expected to
be £25 billion. Thereafter it is expected to grow at a real rate of 6% per year, and the rate of
inflation is expected to be 2.5% per year.
• The gross profit margin is expected to be 10%.
Published September 3rd 2022

• Other annual indirect operating expenses of the new project would amount to about 4% of its
turnover.
• A further £50 million per year of L’Arteta plc’s existing indirect overhead costs are to be
apportioned to the new petroleum products project.
• Interest charges on the debt capital that would be raised by the company to part-finance the
investment is estimated at £80 million per year.
• The average level of working capital to be maintained during each year of the project would
be equal to approximately 12% of the sales for that year and would need to be available at
the start of the year. It is expected that the full amount of working capital will be recovered at
the end of year 6.
• Capital allowances would be available at the rate of 25% per annum on the reducing balance
basis.
• Corporation tax rate is 30% and tax is paid in the year following the profits to which it relates.
• The project is to be evaluated over a time horizon of six years.

L’Arteta’s Marketing Director is not in favour of the petroleum products project as she believes that much
greater value would be created by instead utilising the capital for expanding the company’s operations
into Asia. Her team has estimated that investment of £5 billion of capital for expansion into Asia would
result in net after-tax cash flows of £3 billion per year in the first two years, £1 billion per year in the third
and fourth years, and £500 million per year in the fifth and sixth years. She has expressed her confident
view that this proposed expansion project would generate a net present value over the six-year period
that would be far higher than that of the petroleum products project.

L’Arteta’s chairman has instructed the Treasury team to evaluate both the petroleum products project
and the proposed expansion project, and to let him know which one would be more value-enhancing. He
particularly wishes to know whether the Marketing Director is correct in saying that the expansion project
has a much higher net present value and would therefore create greater shareholder value. Whichever
project is selected, the main source of finance would be debt – the Chairman has therefore said that the
coupon rate of 5% per annum on the company’s existing debt should be used as the cost of capital for the
project evaluations. However, L’Arteta’s Financial Controller has suggested that the weighted average cost
of capital would be more appropriate. The company’s Treasurer has reservations about using either of
these as the cost of capital for the new petroleum products project but has reluctantly agreed to go by
whatever the Chairman and Financial Controller decide in this regard.

Required:

1. Discuss the managing director’s view that maximisation of profits must be the fundamental objective
of the company. Your answer should include a discussion of what should be the underlying goal of a
business undertaking, and the kind of performance objectives that would minimise the potential
problems in achievement of this goal.
(15 Marks)

2. Calculate the company’s weighted average cost of capital, and discuss the views of the Chairman, the
Financial Controller and the Treasurer about what would be the appropriate cost of capital to use for
evaluating these projects. You should provide full explanations of the points that you make, using your
own words.
(35 Marks)

3. Using the information provided in the case, perform a comparative evaluation of the two projects.
Use the net present value project appraisal technique and provide explanations of your reasons for
including or excluding any of the information that has been provided.
(20 Marks)

4. Based on your numerical evaluation of the projects, discuss the investment appraisal technique that
you have used, commenting on what other aspects the management team may also wish to consider.
Published September 3rd 2022

Your answer should provide full and clear explanations of the issues arising out of your evaluation in
your own words, and with particular reference to the case in question.
(30 Marks)
Total 100 Marks)

NOTES:
Marks allocation.

• Requirement 2, 10 marks are allocated to your cost of capital calculation.
• Requirement 3, 10 marks allocated to your NPV calculation of the new project and 5 marks
allocated to your NPV calculation of the expansion.

Marks for the final figures calculated for all three of the above will be based upon correct figures only.
This means that while there will be marks awarded for some workings, you must get the cost of capital,
and both NPV’s correct to gain full marks.

Word count.

You are advised to allocate your word count between the discursive requirements based upon the %
mark for that requirement, or part of a requirement. This is as follows:

Requirement 1: 20% of total word count.
Requirement 2: 30% of total word count.
Requirement 3: 10% of total word count.
Requirement 4: 40% of total word count.



Published September 3rd 2022

Section C: Module Learning Outcomes covered in this
Assessment
This assessment contributes towards the achievement of the following stated module Learning
Outcomes as highlighted below:
• Understand the key financial decisions made by organisations and their impact.
• Understand the impact of time and uncertainty on financial decisions.
• Understand and apply the concepts and tools needed to make project investment decisions, such
as: Present Value, Net Present Value and the Opportunity Cost of Capital.
• Understand the practical problems involved in making project investment decisions including the
practical challenges of collecting and estimating financial data.



Published September 3rd 2022

Section D: Groupwork Instructions (where
relevant/appropriate)
This is a group work assignement. The minimum number of students in a group is three (3) and the
maximum number of students in a group is five (5).

You are required to fill out the spreadsheet which has been emailed with the names of students in your
group. Please follow the instructions and include student first name, last name, student number and
student email address. This must be done for all students in the group.

Please email your filled spreadsheet to barry.mccarthy@ucl.ac.uk asap.


Published September 3rd 2022

Section E: How your work is assessed
Within each section of this assessment you may be assessed on the following aspects, as applicable and
appropriate to this assessment, and should thus consider these aspects when fulfilling the requirements of
each section:
• The accuracy of any calculations required.
• The strengths and quality of your overall analysis and evaluation;
• Appropriate use of relevant theoretical models, concepts and frameworks;
• The rationale and evidence that you provide in support of your arguments;
• The credibility and viability of the evidenced conclusions/recommendations/plans of action
you put forward;
• Structure and coherence of your considerations and reports;
• Appropriate and relevant use of, as and where relevant and appropriate, real world examples,
academic materials and referenced sources. Any references should use either the Harvard OR
Vancouver referencing system (see References, Citations and Avoiding Plagiarism)
• Academic judgement regarding the blend of scope, thrust and communication of ideas,
contentions, evidence, knowledge, arguments, conclusions.
• Each assessment requirement(s) has allocated marks/weightings.

Student submissions are reviewed/scrutinised by an internal assessor and are available to an External
Examiner for further review/scrutiny before consideration by the relevant Examination Board.
It is not uncommon for some students to feel that their submissions deserve higher marks (irrespective of
whether they actually deserve higher marks). To help you assess the relative strengths and weaknesses of
your submission please refer to UCL Assessment Criteria Guidelines, located at
https://www.ucl.ac.uk/teaching-learning/sites/teaching-learning/files/migrated-
files/UCL_Assessment_Criteria_Guide.pdf

The above is an important link as it specifies the criteria for attaining 85% +, 70% to 84%, 60% to 69%, 50%
to 59%, 40% to 49%, below 40%.

You are strongly advised to not compare your mark with marks of other submissions from your student
colleagues. Each submission has its own range of characteristics which differ from others in terms of
breadth, scope, depth, insights, and subtleties and nuances. On the surface one submission may appear to
be similar to another but invariably, digging beneath the surface reveals a range of differing
characteristics.

Students who wish to request a review of a decision made by the Board of Examiners should refer to
the UCL Academic Appeals Procedure, taking note of the acceptable grounds for such appeals.
Note that the purpose of this procedure is not to dispute academic judgement – it is to ensure correct
application of UCL’s regulations and procedures. The appeals process is evidence-based and
circumstances must be supported by independent evidence.



Published September 3rd 2022

Section F: Additional information from module leader
(as appropriate)
N/A