Required: (More detail please see PDF file)
Draft a report to the Finance Director of Madison plc, in which you:
(1) Provide an explanation on the different sources of funding the company can have and their advantages and disadvantages and make recommendations as to how the company can manage the same to help in the planned expansion program. [20 marks]
(2) Comment and provide recommendations on how efficient working capital management can improve a firm’s cash flows? [5 marks]
(3) Analyse the two Investment proposals by using NPV and provide recommendations. You should also briefly comment on other investment proposal techniques that Madison may use, and the limitations of using those techniques. If Madison plc has capital rationing problems where it has only
£5.5 million of funds available for the new investment, suggest which software the company should opt for. Use IRR to support your decision and assume that the second rate of NPV as 10% for the Madison Super Software and 11% for the Madison Platform Software. [20 marks]
(4) You would also be required to explain how the company can use Break-even analysis as a tool to aid them in making a decision as to which software to produce. You will be required to come up with an example with your own numbers and draw up a break-even chart in explaining the same [10 marks]
(4) What other factors may a firm take into account when making investment decisions? [10 marks]
(5) Based on the information provided and to the extent possible, perform ratio analysis and make recommendations as to which company they should be looking to invest ¡n. What other information will help you in making an informed decision on ratio analysis. [10 marks]
(6) Presentation of your work (summary – key is the NPV computation and decisions made) (15marks)
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