Oct 22, 2021 Uncategorized

Recommendation Report assignment at an affordable cost

Recommendation Report
Case Study:
You are the Business Development Manager of Sheffield Limited, a farm nutrient and environmental
company located in central Canterbury. Sheffield Limited focuses in helping farmers and growers in
the South Island of New Zealand to achieve production efficiency and reduce their environmental
impacts. The company produces fertilisers, agrochemicals, and other agriculture products that help
farmers to improve the fertility of soil, the quality of crops and livestock, and eventually the
profitability of farms. The aspirational goals of the project are to learn the various types of financerelated decisions that managers of a company have to make and to understand how finance tools can
help managers in making better decisions that will benefit the company.
Your task:
In preparation for an upcoming management meeting, you have been given a special task to
analyse the financial position of the company and provide recommendations on what actions
should be taken to improve the financial position of Sheffield Limited.
You are to prepare a short report (maximum of eight single-sided A4 pages) that addresses
the specific decisions currently facing different areas of the business.
In your report, outline your recommendations, as well as the information you considered and
the steps you took to arrive at that recommendation.
Here is some background information that you will need to help you in the report process:
Operating
The Inventory Manager is considering introducing a new product to Sheffield Limited – the Sheffield
soil test kit. The kit would sell for $400 per unit, have variable manufacturing costs of $120 per unit,
and variable selling costs of $40 per unit. Market analysis suggests Sheffield Limited could sell 200
units per month. The company’s monthly fixed expenses are $36,000. The tax rate is 30% and Sheffield
Limited have a targeted before-tax profit for the product of $16,000 per month.
Investing
At a recent trade fair that you attended, you were impressed with a new machine, Windwhistle model
230E, that can double the production capacity of your flagship product, Cropmaster 18 Fertiliser. The
machine requires a capital outlay of $500,000 and will have a residual value of $25,000 at the end of
its six-year useful life.
It is expected that the new machine will generate the following cash flows:
2
Investing
At a recent trade fair that you attended, you were impressed with a new machine, Windwhistle model
230E, that can double the production capacity of your flagship product, Cropmaster 18 Fertiliser. The
machine requires a capital outlay of $500,000 and will have a residual value of $25,000 at the end of
its six-year useful life.
It is expected that the new machine will generate the following cash flows:
0 1 2 3 4 5 6
$(500,000)
Initial Inv.
185,000 160,000 145,000 90,000 90,000
90,000
25,000
You have obtained information on the payback Period policy of an investment set by management of
Sheffield Limited and the other information for investment in the new machine, Windwhistle Model
230E as below:
Investment decision
technique
Decision criteria set by
management
Outcome for investment in
Windwhistle model 230E
Payback Period (PP) Not more than 3 years 3.11 years
Net Present Value (NPV) Positive NPV $92,276.33
Internal Rate of Return (IRR) Not less than 9.0% 16.95%
Financing
Assuming you have decided to invest in the Windwhistle model 230E, you now need to decide how to
finance the investment. You have two options of financing for the purchase of the new machine. The
first option is by taking up a long-term loan from a bank. The second option isthrough equity financing
from the shareholders.
In addition, Sheffield have identified four potential suppliers of the required chemical needed to
produce the Cropmaster 18 Fertiliser that uses the Windwhistle model 230E. Each of the suppliers
offer different credit terms as below;
Supplier Cash discount Cash discount
period
Credit period Beginning of
credit period
A 2.0% 15 days 30 days Date of invoice
B 1.5% 10 days 60 days End of month
C 3.0% 7 days 45 days Date of invoice
D 3.5% 15 days 30 days End of month
The investment in the new machine, Windwhistle Model 230E will have a significant impact on the
financial position of Sheffield Limited for its financial year ending 31 December 2021.
You have obtained information on the payback Period policy of an investment set by management of
Sheffield Limited and the other information for investment in the new machine, Windwhistle Model
230E as below:
Financing
Assuming you have decided to invest in the Windwhistle model 230E, you now need to decide how to
finance the investment. You have two options of financing for the purchase of the new machine. The
first option is by taking up a long-term loan from a bank. The second option is through equity financing
from the shareholders.
In addition, Sheffield have identified four potential suppliers of the required chemical needed to
produce the Cropmaster 18 Fertiliser that uses the Windwhistle model 230E. Each of the suppliers
offer different credit terms as below;
The investment in the new machine, Windwhistle Model 230E will have a significant impact on the
financial position of Sheffield Limited for its financial year ending 31 December 2021.
Despite a sales drop of 24% from 2019 to 2020, Sheffield Limited turn from a net loss of $132,700 to
a net profit after tax of $698,520. The Board of Directors is pleased with the performance of the
company in 2020 but is also puzzled as to how the company can turn to profit although the sales
dropped from the previous year. The Chief Financial Officer of the company made projections of the
balance sheet and income statement of the company for its financial year ending 31 December 2021.
The historical figures for 2019 and 2020, and the estimated figures for 2021 (shown as 2021e) are
presented below:
2
Investing
At a recent trade fair that you attended, you were impressed with a new machine, Windwhistle model
230E, that can double the production capacity of your flagship product, Cropmaster 18 Fertiliser. The
machine requires a capital outlay of $500,000 and will have a residual value of $25,000 at the end of
its six-year useful life.
It is expected that the new machine will generate the following cash flows:
0 1 2 3 4 5 6
$(500,000)
Initial Inv.
185,000 160,000 145,000 90,000 90,000
90,000
25,000
You have obtained information on the payback Period policy of an investment set by management of
Sheffield Limited and the other information for investment in the new machine, Windwhistle Model
230E as below:
Investment decision
technique
Decision criteria set by
management
Outcome for investment in
Windwhistle model 230E
Payback Period (PP) Not more than 3 years 3.11 years
Net Present Value (NPV) Positive NPV $92,276.33
Internal Rate of Return (IRR) Not less than 9.0% 16.95%
Financing
Assuming you have decided to invest in the Windwhistle model 230E, you now need to decide how to
finance the investment. You have two options of financing for the purchase of the new machine. The
first option is by taking up a long-term loan from a bank. The second option isthrough equity financing
from the shareholders.
In addition, Sheffield have identified four potential suppliers of the required chemical needed to
produce the Cropmaster 18 Fertiliser that uses the Windwhistle model 230E. Each of the suppliers
offer different credit terms as below;
Supplier Cash discount Cash discount
period
Credit period Beginning of
credit period
A 2.0% 15 days 30 days Date of invoice
B 1.5% 10 days 60 days End of month
C 3.0% 7 days 45 days Date of invoice
D 3.5% 15 days 30 days End of month
The investment in the new machine, Windwhistle Model 230E will have a significant impact on the
financial position of Sheffield Limited for its financial year ending 31 December 2021.
2
Investing
At a recent trade fair that you attended, you were impressed with a new machine, Windwhistle model
230E, that can double the production capacity of your flagship product, Cropmaster 18 Fertiliser. The
machine requires a capital outlay of $500,000 and will have a residual value of $25,000 at the end of
its six-year useful life.
It is expected that the new machine will generate the following cash flows:
0 1 2 3 4 5 6
$(500,000)
Initial Inv.
185,000 160,000 145,000 90,000 90,000
90,000
25,000
You have obtained information on the payback Period policy of an investment set by management of
Sheffield Limited and the other information for investment in the new machine, Windwhistle Model
230E as below:
Investment decision
technique
Decision criteria set by
management
Outcome for investment in
Windwhistle model 230E
Payback Period (PP) Not more than 3 years 3.11 years
Net Present Value (NPV) Positive NPV $92,276.33
Internal Rate of Return (IRR) Not less than 9.0% 16.95%
Financing
Assuming you have decided to invest in the Windwhistle model 230E, you now need to decide how to
finance the investment. You have two options of financing for the purchase of the new machine. The
first option is by taking up a long-term loan from a bank. The second option isthrough equity financing
from the shareholders.
In addition, Sheffield have identified four potential suppliers of the required chemical needed to
produce the Cropmaster 18 Fertiliser that uses the Windwhistle model 230E. Each of the suppliers
offer different credit terms as below;
Supplier Cash discount Cash discount
period
Credit period Beginning of
credit period
A 2.0% 15 days 30 days Date of invoice
B 1.5% 10 days 60 days End of month
C 3.0% 7 days 45 days Date of invoice
D 3.5% 15 days 30 days End of month
The investment in the new machine, Windwhistle Model 230E will have a significant impact on the
financial position of Sheffield Limited for its financial year ending 31 December 2021.
3
Despite a sales drop of 24% from 2019 to 2020, Sheffield Limited turn from a net loss of $132,700 to a
net profit aftertax of $698,520. The Board of Directorsis pleased with the performance of the company
in 2020 but is also puzzled as to how the company can turn to profit although the sales dropped from
the previous year. The Chief Financial Officer of the company made projections of the balance sheet
and income statement of the company for its financial year ending 31 December 2021. The historical
figures for 2019 and 2020, and the estimated figures for 2021 (shown as 2021e) are presented below:
Sheffield Limited
Comparative Balance Sheets
as on 31 December
2019
Actual ($)
2020
Actual ($)
2021e
Estimated ($)
Assets
Cash 7,300 7,500 8,000
Short-Term Investments 18,500 46,600 48,600
Accounts Receivable 650,000 350,000 351,200
Inventories 1,283,860 713,000 715,200
Total Current Assets 1,959,660 1,117,100 1,123,000
Fixed Assets at cost 1,201,350 490,500 491,000
Less: Accumulated Depreciation 261,860 144,700 146,200
Fixed Assets 939,490 345,800 344,800
Total Assets 2,899,150 1,462,900 1,467,800
Liabilities And Equity
Accounts Payable 323,550 145,400 145,600
Notes Payable 699,700 198,200 200,000
Accruals 283,510 132,700 135,000
Total Current Liabilities 1,306,760 476,300 480,600
Long-Term Debt 980,000 322,000 323,432
Common Stock 460,000 540,000 460,000
Retained Earnings 152,390 124,600 203,768
Total Equity 612,390 664,600 663,768
Total Liabilities And Equity 2,899,150 1,462,900 1,467,800
4
Sheffield Limited
Income Statement
for the year ended 31 December
2019
Actual ($)
2020
Actual ($)
2021e
Estimated ($)
Sales 5,831,300 4,429,200 4,432,000
COGS excluding depreciation 4,975,800 2,860,500 2,864,000
Depreciation 116,600 18,500 18,900
Other Expenses 698,000 325,000 340,000
Total Operating Costs 5,790,400 3,204,000 3,222,900
EBIT 40,900 1,225,200 1,209,100
Interest Expense 173,600 61,000 62,500
EBT (132,700) 1,164,200 1,146,600
Taxes (40%) – 465,680 458,640
Net Income (132,700) 698,520 687,960
The financial ratios of the company in 2019 and 2020, and the estimated figures for 2021 (shown as
2021e) are presented below. The financial ratios of the agriculture products industry in New Zealand
are included for comparison purposes.
Sheffield Limited
RatioAnalysis
for the year ended 31 December
Category and ratio 2019
Actual
2020
Actual
2021e
Estimated
Industry
Average
Efficiency Ratios
Inventory Turnover 3.88 times 4.01 times 4.00 times 5.00 times
Average Age of Inventory 94.18 days 90.98 days 91.15 days 73.00 days
Average Collection Period 40.69 days 28.84 days 28.92 days 30.00 days
Average Payment Period 23.73 days 18.55 days 18.56 days 60.00 days
Fixed Asset Turnover 6.21 times 12.81 times 12.85 times 9.00 times
Total Asset Turnover 2.01 times 3.03 times 3.02 times 2.50 times
Financial Stability Ratios
Current Ratio 1.50 times 2.35 times 2.34 times 2.00 times
Quick Ratio 0.52 times 0.85 times 0.85 times 1.00 times
Debt Ratio 0.79 times 0.55 times 0.55 times 0.40 times
Debt to Equity Ratio 3.73 times 1.20 times 1.21 times 0.70 times
Times Interest Earned 0.24 times 20.09 times 19.35 times 25.00 times
Profitability Ratios
Gross Profit Margin 14.67% 35.42% 35.38% 27.00%
Operating Profit Margin 0.70% 27.66% 27.28% 16.00%
Net Profit Margin -2.28% 15.77% 15.52% 12.00%
Return on Total Assets -4.58% 47.75% 46.87% 30.00%
Return on Equity -21.67% 105.10% 103.64% 35.00%
Report Requirements:
You are to prepare a short report (maximum of eight single-sided A4 pages) that addresses the
specific decisions currently facing different areas of the business (refer to the details on Page 1). Also,
please refer to the marking guide (page 6).

  1. Introduction: Provide a brief and concise introduction of contents of the recommendation
    report and a highlight of the main recommendations. Outline Coverage.
    (5 marks)
  2. Analysis – Operating Decision: Should Sheffield Limited introduce the ‘Sheffield Soil Test Kit’?
    (10 marks)
  3. Analysis – Investing Decision: Should the capital expenditure proposal to purchase a new
    machine, Windwhistle model 230E that can double the production capacity of your flagship
    product, Cropmaster 18 Fertiliser be accepted?
    (10 marks)
  4. Analysis – Financing Decisions: Which is the better option for financing the new machine –
    long-term loan from a bank or equity financing from the shareholders? Who should be the
    preferred supplier for the required chemical needed to produce the Cropmaster 18 Fertiliser?
    (10 marks)
  5. Analysis – Financial Statement Analysis: What actions could be taken to improve the
    performance of Sheffield Limited in each of the categories of financial ratios (efficiency ratios,
    financial stability ratios, and profitability ratios)?
    (20 marks)
  6. Analysis – Overall: What should be the future direction of Sheffield Limited? How can Sheffield
    Limited remain competitive amidst the Covid-19 pandemic that is expected to have a
    significant impact on the financial performance of the company?
    (15 marks)
  7. Organisation and Conclusion: Organise your recommendation report in a proper manner that
    ties the introduction, analysis, and conclusion sections nicely. The conclusion section should
    follows logically from analysis.
    (20 marks)

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