STRATEGIC FINANCIAL DECISION AND ANALYSIS

The Finance; Investment; Dividend and Risk Management Strategy

You are a member of the Board of UK OIL Plc whose role is to make strategic and operational decisions.

Throughout the last few months, your Finance Department have been considering a number of issues, detailed on the attached.

Next week (week commencing 12th January) they will present their findings.

Following their presentation, your task is to submit a report justifying your decisions and highlighting the risks and considerations you have in making these decisions.

Which machine (if any) should you buy ?

British Oil Machinery who have quoted £3,000,000 OR

Munchen Machinery Germany who have quoted of €3,400,000 supported by appropriate international guarantees.

How should you finance the purchase ?

Equity (Shares) or Debt finance or a Combination

If Debt, what type of debt ?

Loan or Bond

Fixed or Floating Rate

Sterling or Foreign Currency

The company’s Risk Management (Hedging) Strategy

The company’s Dividend Policy ?

( barry in mind the latest exchange rate and take the decision based on the excel sheet )

(( PART 2 ))

PART 2: Mergers & Acquisitions

Stage 1 (30%)

UK Oil Plc have been performing well and are now considering their growth strategy.

One possibility, is the acquisition of Arabic Oil Supplies Abu Dhabi, though you may wish to recommend alternative growth strategies

To support you:

The Finance Department have been evaluating the financial implications, costs, benefit etc and will present their findings during the Week Commencing 16th February 2015 with regard to:

method of finance

transfer price

location and operation of Group Treasury Department which may be possible/advantageous post-acquisition

Following their presentation, your task is to submit a report justifying your decisions and highlighting the risks and considerations you have in making these decisions.

Your growth strategy, include and evaluation of the proposed acquisition and alternative strategies

( apply Ansof matrix )

The Method of Financing the Acquisition

( how are you going to finance the business )

How should you finance the purchase ?

Equity (Shares) or Debt finance or a Combination

If Debt, what type of debt ?

Loan or Bond

Fixed or Floating Rate

Sterling or Foreign Currency

Location and Operation of the Treasury Department

( if it’s in UAE there will be only 30% return to UK . if it’s in Uk based calculate the tax )

Tax Management, including consideration of Transfer Pricing, Remittance Restrictions and Corporate Social Responsibility.

(( PART 2 STAGE 1 – LIQUIDATION ))

Unfortunately the acquisition which (you can now assume) was financed by issuing sterling debt equivalent to $20,000,000, proved disastrous and the company are now facing the possibility of administration or even liquidation.

Present an outline of how funds would be distributed in the event of liquidation and evaluate the position of each class of creditor including the various shareholders assuming:

Non Current Assets realize £140,000,000

Current Assets include:

Bad Stock £5,000,000

Bad Debts £10,000,000

Liquidation Fees of £500,000

Consolidated Balance Sheet of UK Oil Group as at 31.12.20×5

£000 £ 000

Non Current Assets £ 162,000

Goodwill £ 8,000

Current Assets £ 55,000

Less Current Liabilities £ 50,000 £ 5,000

£ 175,000

Less Non Current Liabilities

Loans (secured) £ 70,000 £ 105,000

Share Capital – 50p Ordinary Shares £ 50,000

Share Capital – 5% £1 preference shares £ 30,000

Share Premium £ 20,000

Retained Profits £ 5,000

£ 105,000

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