N1086 INTRODUCTION TO ACCOUNTING

SECTION A

This section is based on the case study

QUESTION1.

Read the case study about Datahelp Ltd, at the end of this question, and produce a report on the risks and rewards of the business.

Your report should include a section summarising any recommendations you make.

Your answer must not exceed 1,500 words.

You are advised to show any substantial calculations (such as the cash budget) in an Appendix.

You are advised to include citations for any sources other than lecture materials.

Your report should have a suitable title and contain the following sections:

1. Discussion

1.1 Budgetary control report

1.2 Ratio analysis

1.3 Cash budget for April May and June

1.4 Refinancing

2. Summary of Recommendations

3. References

4. APPENDIX

You are not required to provide an abstract, management summary or introduction.

To prepare the cash budget for April, May and June, you should assume that the actual levels of income and expenditure shown in the budgetary control report for January to March, also apply for the following three months.

[75 marks]

QUESTION 2.

Assume one of Mark’s cousins (Shelley) is, after all, able to help fund the business. She offers to buy Datahelp shares for £8,000, enabling the company to immediately repay the £8,000 loan. She will then hold 40% of the shares in the company

Required:

Using discounted cashflow techniques, calculate how long will it take Shelley to recover her investment?

Assume that:

· She is assured of a genuine 40% share in dividends and capital growth

· Her cost of capital is 1% per month

· After June, cash receipts increase at 5% a month and cash payments increase at 2% a month

[10 marks]

SECTION B

This section does not specifically relate to the case study.

Answer ONE QUESTION only

QUESTION1.

Explain whether or not the statement of financial position shows how much a business is worth.

[15 marks]

QUESTION2.

Explain why modern businesses tend to have higher levels of operating gearing than they did in the past.

[15 marks]