HORIZON limited Case Study - Accounting and Finance Assignment Help

Assignment Task :

HORIZON limited is a UK subsidiary of the Australian MMC Group. The company has been operating in the UK for the past 9 years. HORIZON provides financial services to a number of organisations which include SME’s, property developers and investment property funds in the UK and Australia. For the past 9 years, HORIZON has been a profit-making firm as it has retained its previous clients, in addition to capturing an increasing share of the market. However, the finance director of HORIZON has recently got in touch with your professional consulting firm and has engaged your firm with the mandate to provide them with an explanation of the cash flow problem that HORIZON Limited had been facing. The company is also dependent on the parent based in Australia for funds, as and when required.

In the past month there has been a number of meetings in London and Australia where it has been agreed that HORIZON Limited should do their best to expand the business and raise the required capital in the UK, or perhaps in Europe, so as not to depend so much on cash coming from the parent company all the time. Consequently, the management of HORIZON is considering the following projects:

The current product that HORIZON Limited has to offer mostly to specialist developers and investment funds companies is outdated. The company is looking to invest in a new product and there are two proposals on offer. The details of these two proposals are outlined below.

All of the above estimates have been prepared in terms of present-day cost and prices. Assume that cash flows arise at the end of each period. In addition

• Revenues are expected to rise by 4% in price terms per year from year 1 (start of year 2).

• Overheads are expected to rise by 4% per year from year 1 (start of year 1)

• The cost of First Module and Second Module are expected to rise in line with inflation of 4% per year from the beginning of year 1.

• The cost of Technical Experts, who have come from the Australia have not been taken into consideration in the forecast and are as follows:

Specialist Developer 1 (SD1): Will be paid £120 per hour and expected number of hours for SD1 are 1,400hrs. The rate paid is expected to rise in line with inflation at 4% per year from year 2 and the number of hours is expected to reduce by 3% per year, every year from year 2 onwards.

Specialist Developer 2 (SD2): Will be paid £110 per hour and expected number of hours for SD2 are 1,200hrs. The rate paid is expected to go up in line with inflation at 4% per year from year 2 and the number of hours is expected to reduce by 3% per year, every year from year 2 onwards.

If HORIZON Limited invests in Advanced Suite, then the discount rate that would be required to assess the NPV would be 10%. The table above shows the estimated outgoings and inflows for the project. 

Requirement:

You are required to write a management report to the management of HORIZON limited directors in which the following points should be discussed.

• Provide an explanation on the different sources of funding the company can have and their advantages and disadvantages. You should make recommendations as to how the company can manage the same to help in the planned expansion program.

• Analyse the Investment proposals by using NPV and provide recommendations. You should also briefly comment on other investment proposal techniques that HORIZON Limited may use, and the limitations of using those techniques

• The use of management tools such as breakeven analysis and Budgets.

• A computation of your breakeven analysis and the cash budget for the first 3 months.

• An evaluation of the estimated company performance or position during the same period

• A detailed Literature Review of the tools you have used such as breakeven analysis and budgets and their importance to business.

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