In what circumstances is a company’s quick assets ratio greater than its current ratio on the same date?

SOE11444- Global Business Economics and Finance

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You have been engaged as a management consultant by Scylace plc, a grocery retail chain. You have been asked to evaluate two alternative proposals for a new superstore. You have the option to build the superstore at one of two locations. The cost of building the new superstore and the annual sales revenue and costs are as follows:
  Option A
Location A
£ million Option B
Location B
£ million
Cost of New Superstore 30.0 45.0
Residual Value 3.0 7.0
Annual Sales Revenue 36.0 52.0
Annual Cost of Sales (27.0) (39.0)
Annual Staff Costs (2.2) (4.8)
Other Annual Costs excluding depreciation (1.1) (0.8)
Depreciation is to be charged on a straight line basis over a period of 50 years, taking account of the residual value.

Question 1
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Select the correct formula for annual gross profit.
Select one:

a.
Annual Sales Revenue – Annual Cost of Sales – Depreciation

b.
Annual Sales Revenue – Annual Cost of Sales

c.
Annual Sales Revenue – Annual Cost of Sales – Annual Staff Costs – Depreciation – Other Annual Costs

d.
(Annual Sales Revenue – Annual Cost of Sales + Residual Value) ÷ 50
Question 2
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Calculate the annual gross profit for Option A
(Enter your answer, assumed to be in millions of pounds, to two decimal places. Example: enter 1.25 for the value ‘one and a quarter million pounds’) 
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Question 3
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Calculate the annual gross profit for Option B
(Enter your answer, assumed to be in millions of pounds, to two decimal places. Example: enter 1.25 for the value ‘one and a quarter million pounds’) 

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Question 4
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Select the correct formula for annual straight-line depreciation on a superstore.
Select one:

a.
(Cost of New Superstore + Residual Value) / 2

b.
(Annual Sales Revenue – Annual Cost of Sales + Residual Value) ÷ 50

c.
(Cost of New Superstore – Residual Value) ÷ Lifespan of Superstore in Years

d.
Cost of New Superstore + (Residual Value / 50)
Question 5
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For Option A, calculate the Average Investment in the Superstore, assuming straight-line depreciation. The average investment is the average amount invested over the useful life of the asset.
(Enter your answer, assumed to be in millions of pounds, to two decimal places. Example: enter 1.25 for the value ‘one and a quarter million pounds’)

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Question 6
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For Option B, calculate the Average Investment in the Superstore, assuming straight-line depreciation. The average investment is the average amount invested over the useful life of the asset.
(Enter your answer, assumed to be in millions of pounds, to two decimal places. Example: enter 1.25 for the value ‘one and a quarter million pounds’)

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Question 7
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For Option A, calculate the annual net profit.
(Enter your answer, assumed to be in millions of pounds, to two decimal places. Example: enter 1.25 for the value ‘one and a quarter million pounds’) 
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Question 8
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For Option B, calculate the annual net profit.
(Enter your answer, assumed to be in millions of pounds, to two decimal places. Example: enter 1.25 for the value ‘one and a quarter million pounds’) 

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Question 9
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For Option A, calculate the annual Accounting Rate of Return. Remember to use straight-line depreciation and remember to use the average investment in the superstore. 
(Enter your answer, assumed to be a percentage, to two decimal places. Example: for a percentage of twenty five percent you would enter 25.00) 

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Question 10
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For Option B, calculate the annual Accounting Rate of Return. Remember to use straight-line depreciation and remember to use the average investment in the superstore. 
(Enter your answer, assumed to be a percentage, to two decimal places. Example: for a percentage of twenty five percent you would enter 25.00) 

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Business Finance
You have been engaged as a management consultant by Scylace plc, a grocery retail chain. You have been asked to evaluate three alternative proposals financing expansion. The options are:
to issue a bond redeemable in 20 years
to issue a bond redeemable in 50 years
or to issue new shares.
The details of the proposed alternative bonds and their expected market values are as follows:
  20-year bond 50-year bond
Face Value of each bond £100 £100
Nominal Interest Rate 8.0% 6.5%
Predicted market price of bond £95 £70
Scylace plc has ordinary shares with a nominal value of £1 each listed on the London Stock Exchange.
The market price of 1 Scylace ordinary shares is 560p
Over the last year, Scylace has paid a dividend of 28.00p per share.
The directors are expecting the company to pay dividends of 28.35 per share over the next year and expect dividends to grow at a constant percentage rate for the foreseeable future.

Question 11
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Calculate the predicted yield to redemption on the 20-year bond, using the following formula
Coupon = Annual Interest Payable, excluding redemption value.

(Enter your answer, assumed to be a percentage, to two decimal places. Example: for 25 per cent, enter 25.00)

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Question 12
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Calculate the predicted yield to redemption on the 50-year bond, using the following formula

Coupon = Annual Interest Payable, excluding redemption value.
(Enter your answer, assumed to be a percentage, to two decimal places. Example: for 25 per cent, enter 25.00)

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Question 13
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Calculate the cost of equity capital for Scylace plc.
(Enter your answer, assumed to be a percentage, to two decimal places. Example: for 25 per cent enter 25.00)

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Section 3 – Financial Reporting
The directors of Scylace plc have also expressed an interest in in making a takeover bid for a clothing retailer, Helibeb plc. The following figures have been extracted from Helibeb’s financial statements for the last two years:
  Year Ended September 30th.
  2017
£m 2018
£m
Sales Income 681 697
Cost of Sales (492) (500)
Gross Profit 189 197
Distribution Costs (85) (87)
Administration Expenses (79) (83)
Operating Profit 25 27
Finance Income 0 0
Finance Costs (6) (5)
Net Profit Before Tax 19 22
Taxation (3) (4)
Net Profit After Tax 16 18
Dividends (6) (7)
Retained Profit 10 11
 
 
  As at September 30th.
  2016 2017 2018
  £m £m £m
Non-Current Assets 203 209 211
Current Assets 19 22 29
Current Liabilities (37) (38) (40)
Non-Current Liabilities (82) (80) (76)
Shareholders’ Equity 103 113 124

Question 14
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Financial Reporting
The directors of Scylace plc have also expressed an interest in in making a takeover bid for a clothing retailer, Helibeb plc. The following figures have been extracted from Helibeb’s financial statements for the years ending September 30th 2019 and 2020:
  Year Ended September 30th.
  2019
£m 2020
£m
Sales Income 720 750
Cost of Sales (520) (535)
Gross Profit 200 215
Distribution Costs (90) (95)
Administration Expenses (90) (85)
Operating Profit 20 35
Finance Income 0 0
Finance Costs (5) (5)
Net Profit Before Tax 15 30
Taxation (3) (6)
Net Profit After Tax 12 24
Dividends (6) (7)
Retained Profit 6 17
 
 
  As at September 30th.
  2018 2019 2020
  £m £m £m
Non-Current Assets 211 212 218
Current Assets 29 36 47
Current Liabilities (40) (48) (50)
Non-Current Liabilities (76) (70) (68)
Shareholders’ Equity 124 130 147
If sales income for the year ending September 30th 2021 is £748m and cost of sales for the year ending September 30th 2021 is £540m and finance costs for the year ending September 30th 2021 are £6m, what will the gross profit be for the year ending September 30th 2021?
Enter your answer in £m. For example, for £10m answer 10

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Question 15
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Assume that the following figures are correct for Helibeb for the year ending September 30th 2021
Sales Income £756m
Cost of Sales £568m 
Distribution Costs £82m
Administration Costs £69.5m
Finance Costs £6m
What will the operating profit be for the year ending September 30th 2021?
Enter your answer in £m. For example, for £10m answer 10
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Question 16
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You are provided with the following figures for Company A for the year ending December 31st 2021
Sales Income £107m
Cost of Sales £65m
Distribution Costs £6m
Administration Costs £7m
Finance Income £0m
Finance Costs £3m
Tax is 19% of profit before tax
Calculate the net profit margin after tax.
Your answer is assumed to be a percentage. State your answer to 2 decimal places. For example, for 7.5% answer 7.50

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Question 17
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You are provided with the following figures for Company B for the year ending December 31st 2021
Sales Income £220m
Cost of Sales £144m
Distribution Costs £33m
Administration Costs £5m
Finance Income £0m
Finance Costs £10m
Average Capital Employed £163m
Calculate the Turnover of Capital Employed
State your answer to 2 decimal places. For example, for 7.677% answer 7.68

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Question 18
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You are provided with the following figures for Company C for the year ending December 31st 2021
Sales Income £167m
Cost of Sales £86m
Distribution Costs £4m
Administration Costs £4m
Finance Income £0m
Finance Costs £23m
Average Capital Employed £109
Calculate the Return on Capital Employed (before tax)
Your answer is assumed to be a percentage. State your answer to 2 decimal places. For example, for 7.5% answer 7.50

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Question 19
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For Company D for the Year ending March 31st 2022:
The Return on Capital Employed is 10.9%
The Operating Profit Margin is 44.5%
What is the Turnover of Capital Employed?
Enter your answer to 2 Decimal Places. For example, for 2.7583 enter 2.76 
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Question 20
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You are provided with the following figures for Company E for the year ended March 31st 2022
Return on Capital Employed 9.3%
Operating Profit Margin 3.8%
Calculate the Turnover of Capital Employed.
Enter your answer to 2 Decimal Places. For example, for 7.332, enter 7.33  

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Question 21
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You are provided with the following figures for Company F for the year ended March 31st 2022
Return on Capital Employed 21.2%
Operating Profit Margin 17.6%
Calculate the Turnover of Capital Employed.
Enter your answer to 2 Decimal Places. For example, for 7.332, enter 7.33  

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Question 22
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You are provided with the following figures for Company I for the year ended March 31st 2022
Opening Inventory £6.1m
Closing Inventory £7.0m
Cost of Inventory Used £43.5m
Calculate the Inventory Turnover Period.
Enter your answer to 2 Decimal Places. For example, for 7.332, enter 7.33  

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Question 23
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You are provided with the following figures for Company H for the year ended March 31st 2022
Opening Inventory £8.3m
Closing Inventory £9.4m
Cost of Inventory Used £44.8m
Calculate the Inventory Turnover Period in Days.
Enter your answer to 2 Decimal Places. For example, for 7.332, enter 7.33  

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Question 24
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You are provided with the following figures for Company I for the year ended March 31st 2022
Opening Trade Receivables £195.2m
Closing Trade Receivables £111.6m
Sales Income 414.0m
Calculate the Receivables Turnover Period for Trade Receivables in Days.
Enter your answer to 2 Decimal Places. For example, for 7.332, enter 7.33  

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Question 25
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You are provided with the following figures for Company J for the year ended March 31st 2022
Opening Trade Receivables £4.0m
Closing Trade Receivables £5.5m
Sales Income £35.6m
Calculate the Receivables Turnover Period for Trade Receivables in Days.
Enter your answer to 2 Decimal Places. For example, for 7.332, enter 7.33  

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Question 26
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You are provided with the following figures for Company K for the year ended March 31st 2022
Opening Trade Payables £62.7m
Closing Trade Payables £57.7m
Total Payments to Trade Creditors £471.6m
Calculate the Payables Turnover Period for Trade Payables in Days.
Enter your answer to 2 Decimal Places. For example, for 7.332, enter 7.33  

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Question 27
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You are provided with the following figures for Company L as at June 30th 2021
Current Assets £302.5m
Net Current Assets £28.4m
Calculate the Current Ratio
Enter your answer to 2 Decimal Places. For example, for 1.5762, enter 1.58

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Question 28
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You are provided with the following figures for Company M as at June 30th 2021
Current Assets £57.0m
Current Liabilities £79.6m
Calculate the Current Ratio
Enter your answer to 2 Decimal Places. For example, for 1.5762, enter 1.58

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Question 29
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You are provided with the following figures for Company N as at June 30th 2021
Current Assets £20.8m
Inventory £7m
Current Liabilities £12
Calculate the Quick Assets Ratio
Enter your answer to 2 Decimal Places. For example, for 1.5762, enter 1.58

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Question 30
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In what circumstances is a company’s quick assets ratio greater than its current ratio on the same date?
Select one:

a.
The quick assets ratio cannot ever be greater than the current ratio

b.
If the company has any inventory at all

c.
If the company’s gross profit margin is negative and the inventory turnover period exceeds the payables turnover period

d.
If the company’s gross profit margin is negative and the payables turnover period exceeds the inventory turnover period