Question 1: Capital Expenditure Decisions and Investment Criteria - Morten Ltd In recent years Morten Ltd, a company that manufactures and markets a range of pharmaceutical products, has been highly profitable. Its success has been based to a large extent on its ability to generate and market new and innovative products on a regular basis. The latest of these products has just completed various tests to ensure it meets regulatory requirements and a decision now has to be taken on whether or not to proceed with an investment in the facilities required for manufacturing the product. You are required to undertake an evaluation of this potential investment. The company has already spent £800,000 on the research programme from which this product has emerged. A number of other products are expected to get to the testing stage within the next few months. While is impossible to allocate accurately the expenditure incurred to the different products generated by the research programme it is agreed that the development of the product under consideration accounts for at least 40 per cent of the programme’s expenditure of £800,000. The company will have to cover the cost of further testing of the product to be undertaken by the regulatory body and this is expected to be about £90,000. The development director is very confident that the tests will be successful as they have already been rigorously undertaken by the company and no problems were identified. The company anticipates that the product will remain competitive for the next five years after which it is likely to be displaced by the new products that are always being developed as the underlying technology evolves. In the first year it is anticipated that 200,000 units will be sold at a price of £12. From year two through to year four sales are expected to be 300,000 units per annum but are expected to fall back to 200,000 units in year five. It is anticipated that the price of the product will remain unchanged over the five year period. The product will be manufactured in a factory already owned by the company that has considerable spare capacity. It is very unlikely that the space taken up by the manufacture of the product will be required for any other purpose over the five year period that is planned for its manufacture. In the company’s management accounting system all products are charged for the factory space that they require and this will amount to £30,000 per annum. The machinery required for the manufacture of the product will cost £1,200,000. It will have to be depreciated for tax purposes on the basis of an annual 25 per cent writing down allowance (ie. 25 per cent of the remaining book value of the asset having allowed for the allowances claimed in previous years). At the end of the five year period the machinery will be sold or, if it is more profitable, used in the manufacture of other products. The resale value of machinery of this nature after being used for five years is like ...

1. Question 1: Capital Expenditure Decisions and Investment
Criteria - Morten Ltd
In recent years Morten Ltd, a company that manufactures and
markets a range of pharmaceutical products, has been highly
profitable. Its success has been based to a large extent on its
ability to generate and market new and innovative products on a
regular basis. The latest of these products has just completed
various tests to ensure it meets regulatory requirements and a
decision now has to be taken on whether or not to proceed with
an investment in the facilities required for manufacturing the
product. You are required to undertake an evaluation of this
potential investment.
The company has already spent £800,000 on the research
programme from which this product has emerged. A number of
other products are expected to get to the testing stage within the
next few months. While is impossible to allocate accurately the
expenditure incurred to the different products generated by the
research programme it is agreed that the development of the
product under consideration accounts for at least 40 per cent of
the programme’s expenditure of £800,000.
The company will have to cover the cost of further testing of
the product to be undertaken by the regulatory body and this is
expected to be about £90,000. The development director is very
confident that the tests will be successful as they have already
been rigorously undertaken by the company and no problems
were identified.
The company anticipates that the product will remain
competitive for the next five years after which it is likely to be
displaced by the new products that are always being developed
as the underlying technology evolves. In the first year it is
anticipated that 200,000 units will be sold at a price of £12.
From year two through to year four sales are expected to be
300,000 units per annum but are expected to fall back to
200,000 units in year five. It is anticipated that the price of the

2. product will remain unchanged over the five year period.
The product will be manufactured in a factory already owned by
the company that has considerable spare capacity. It is very
unlikely that the space taken up by the manufacture of the
product will be required for any other purpose over the five year
period that is planned for its manufacture. In the company’s
management accounting system all products are charged for the
factory space that they require and this will amount to £30,000
per annum.
The machinery required for the manufacture of the product will
cost £1,200,000. It will have to be depreciated for tax purposes
on the basis of an annual 25 per cent writing down allowance
(ie. 25 per cent of the remaining book value of the asset having
allowed for the allowances claimed in previous years). At the
end of the five year period the machinery will be sold or, if it is
more profitable, used in the manufacture of other products. The
resale value of machinery of this nature after being used for five
years is likely to be about 30 per cent of its purchase price.
The cost of the labour and materials required for the
manufacture of the product has been estimated at £7.50 per unit,
with materials accounting for 40 per cent of the cost and labour
the residual 60 per cent. There are also fixed costs of £150,000
per annum stemming from the manufacturing process. The
product will also be charged an allowance for general overheads
by the management accountants, set at 5 per cent of the
revenues produced by the product. The overheads include the
company’s expenditure on new product development – an
important expense of the company. The initial marketing of the
product will cost £250,000 and the sales support per annum will
cost £100,000. It is anticipated that the company will have to
invest in working capital – holding finished products equivalent
to 20 per cent of next year’s sales, 25 per cent of the materials
required for the next year, and it is expected that debtors and
creditors will just about offset each other. The tax rate is 40 per
cent and the required rate of return on investments of this nature
is 16 per cent.

3. a)
Determine the investment’s net present value, the internal rate
of return and payback period. All key assumptions should be
specified and explained.
b)
Interpret the reported NPV, IRR, payback and the discount
payback period, using the proposed investment to illustrate your
answer.
c)
Analyse the inputs into the analysis to which the NPV most
sensitive.
Question 2: Valuation of a Company’s Shares
Identify the (current) price earnings ratios for three companies
traded on the London Stock Exchange and indicate how the ratio
has changed over the last five years. Discuss the factors that
might explain the differences between the price earnings ratios
for the three companies and the changes that have occurred in
their price earnings ratios over the five year period. (Choose
companies with a range of P/E ratios to give you one with a
relatively low value, one with a relatively high value, and
another with a middling value.
You should use the insights provided by valuation models on
the determinants of the price-earnings ratios in your discussion,
but you should also discuss the role of any other factors that
might influence the reported values of price-earnings ratios of
the companies you have chosen.
Question 3
Barclays Bank announced its intention to undertake a rights
issue to raise £5.8 billion on the 29th of July this year (2013).
a) Provide comments on the financial position and performance
of the Bank and the rationale provided for the issue
.
b) Specify the terms of the issue, the anticipated ex-rights price
and calculate the value of a right.

4. c) Demonstrate that an investor at the time of the issue will in
principle be equally well off from investing in the issue or
selling the rights they have been allocated.
d) Comment on the market’s reaction to the announcement of
the issue. Use financial theory to try to explain the reaction
Question 4
The attached file (Portfolio Analysis 2012-13) gives 60 monthly
returns for thirty securities drawn from the FT ALL Share Index
for the period January 2001 and December 2005. (These months
were chosen to avoid the period of the financial and economic
crises from 2007 onwards.)
a)
i. Choose any five securities at random and determine (using
Excel functions) the average monthly returns for each company
for the 60 months along with the variance and standard
deviation of these returns. Next construct an equally weighted
portfolio made up of the five securities, and determine the
series of monthly returns. On this basis determine the average
return for the portfolio and the associated variance and standard
deviation.
The averages, variances, and standard deviations can be derived
using the relevant Excel functions. Utilise the Excel
specification for population variance and standard deviation –
STDEVP and VARP – in the calculations.
Explain the discuss the relationship between the average
returns, average variance, and average standard deviation for
the five securities and the average returns, variance, and
standard deviation for the portfolio.

5. ii. Determine the co-variances for each pair of securities in the
portfolio and on the basis of this information along with the
variances for the returns for the securities calculate the average
variance and average co-variance. Using the portfolio equation
for an equally weighted portfolio, calculate the standard
deviation of the returns on the portfolio. Compare your results
to those obtained for the portfolio in part i above. Comment and
explain your findings.
b) Choosing securities at random to form equally weighted
portfolios of 1, 5, 10, 15 and 20 securities and determine the
standard deviation of these portfolios. Next plot your results for
the standard deviations against the number of securities in the
portfolios. Comment on your results and compare these with the
results of the studies of naïve diversification. (In undertaking
this analysis you can derive the results for each of the portfolios
using the Excel spread-sheet – there is no need to employ the
portfolio equations and estimates of co-variances etc.)
(Approximately 500 words)
c) Determine the beta of one security by regressing the returns
for the share on the returns for the FT ALL Share Index (the last
column in the spread-sheet). Comment on what the value of the
beta (the slope coefficients in the regression) indicates and
discuss the primary determinants of a share’s beta
Question 1: Capital Expenditure Decisions and Investment
Criteria
-
Morten Ltd
In recent years Morten Ltd, a company that manufactures and
markets a range of
pharmaceutical products, has been highly profitable. Its success
has been based to a large
extent on its ability to generate and market new and innovative

6. products on a regular
basis. The
latest of these products has just completed various tests to
ensure it meets regulatory
requirements and a decision now has to be taken on whether or
not to proceed with an
investment in the facilities required for manufacturing the
product. You
are required to
undertake an evaluation of this potential investment.
The company has already spent £800,000 on the research
programme from which this product
has emerged. A number of other products are expected to get to
the testing stage within the
nex
t few months. While is impossible to allocate accurately the
expenditure incurred to the
different products generated by the research programme it is
agreed that the development of
the product under consideration accounts for at least 40 per cent
of the pr
ogramme’s
expenditure of £800,000.
The company will have to cover the cost of further testing of
the product to be undertaken by
the regulatory body and this is expected to be about £90,000.
The development director is very
confident that the tests will b
e successful as they have already been rigorously undertaken by
the company and no problems were identified.
The company anticipates that the product will remain
competitive for the next five years after

7. which it is likely to be displaced by the new produ
cts that are always being developed as the
underlying technology evolves. In the first year it is anticipated
that 200,000 units will be sold at
a price of £12. From year two through to year four sales are
expected to be 300,000 units per
annum but are exp
ected to fall back to 200,000 units in year five. It is anticipated
that the price
of the product will remain unchanged over the five year period.
The product will be manufactured in a factory already owned by
the company that has
considerable spare capac
ity. It is very unlikely that the space taken up by the
manufacture of the
product will be required for any other purpose over the five year
period that is planned for its
manufacture. In the company’s management accounting system
all products are charged
for the
factory space that they require and this will amount to £30,000
per annum.
The machinery required for the manufacture of the product will
cost £1,200,000. It will have to
be depreciated for tax purposes on the basis of an annual 25 per
cent writin
g down allowance
(ie. 25 per cent of the remaining book value of the asset having
allowed for the allowances
claimed in previous years). At the end of the five year period
the machinery will be sold or, if it is
more profitable, used in the manufacture of
other products. The resale value of machinery of
this nature after being used for five years is likely to be about

8. 30 per cent of its purchase price.
The cost of the labour and materials required for the
manufacture of the product has been
estimated at £7
.50 per unit, with materials accounting for 40 per cent of the
cost and labour the
residual 60 per cent. There are also fixed costs of £150,000 per
annum stemming from the
manufacturing process. The product will also be charged an
allowance for general ove
rheads by
the management accountants, set at 5 per cent of the revenues
produced by the product. The
overheads include the company’s expenditure on new product
development
–
an important
expense of the company. The initial marketing of the product
will cos
t £250,000 and the sales
support per annum will cost £100,000. It is anticipated that the
company will have to invest in
working capital
–
holding finished products equivalent to 20 per cent of next
year’s sales, 25 per
cent of the materials required for t
he next year, and it is expected that debtors and creditors
will just about offset each other. The tax rate is 40 per cent and
the required rate of return on
investments of this nature is 16 per cent.

9. Question 1: Capital Expenditure Decisions and Investment
Criteria - Morten Ltd
In recent years Morten Ltd, a company that manufactures and
markets a range of
pharmaceutical products, has been highly profitable. Its success
has been based to a large
extent on its ability to generate and market new and innovative
products on a regular basis. The
latest of these products has just completed various tests to
ensure it meets regulatory
requirements and a decision now has to be taken on whether or
not to proceed with an
investment in the facilities required for manufacturing the
product. You are required to
undertake an evaluation of this potential investment.
The company has already spent £800,000 on the research
programme from which this product
has emerged. A number of other products are expected to get to
the testing stage within the
next few months. While is impossible to allocate accurately the
expenditure incurred to the
different products generated by the research programme it is
agreed that the development of
the product under consideration accounts for at least 40 per cent
of the programme’s
expenditure of £800,000.
The company will have to cover the cost of further testing of
the product to be undertaken by
the regulatory body and this is expected to be about £90,000.
The development director is very
confident that the tests will be successful as they have already
been rigorously undertaken by
the company and no problems were identified.
The company anticipates that the product will remain
competitive for the next five years after
which it is likely to be displaced by the new products that are

10. always being developed as the
underlying technology evolves. In the first year it is anticipated
that 200,000 units will be sold at
a price of £12. From year two through to year four sales are
expected to be 300,000 units per
annum but are expected to fall back to 200,000 units in year
five. It is anticipated that the price
of the product will remain unchanged over the five year period.
The product will be manufactured in a factory already owned by
the company that has
considerable spare capacity. It is very unlikely that the space
taken up by the manufacture of the
product will be required for any other purpose over the five year
period that is planned for its
manufacture. In the company’s management accounting system
all products are charged for the
factory space that they require and this will amount to £30,000
per annum.
The machinery required for the manufacture of the product will
cost £1,200,000. It will have to
be depreciated for tax purposes on the basis of an annual 25 per
cent writing down allowance
(ie. 25 per cent of the remaining book value of the asset having
allowed for the allowances
claimed in previous years). At the end of the five year period
the machinery will be sold or, if it is
more profitable, used in the manufacture of other products. The
resale value of machinery of
this nature after being used for five years is likely to be about
30 per cent of its purchase price.
The cost of the labour and materials required for the
manufacture of the product has been
estimated at £7.50 per unit, with materials accounting for 40 per
cent of the cost and labour the
residual 60 per cent. There are also fixed costs of £150,000 per
annum stemming from the

11. manufacturing process. The product will also be charged an
allowance for general overheads by
the management accountants, set at 5 per cent of the revenues
produced by the product. The
overheads include the company’s expenditure on new product
development – an important
expense of the company. The initial marketing of the product
will cost £250,000 and the sales
support per annum will cost £100,000. It is anticipated that the
company will have to invest in
working capital – holding finished products equivalent to 20 per
cent of next year’s sales, 25 per
cent of the materials required for the next year, and it is
expected that debtors and creditors
will just about offset each other. The tax rate is 40 per cent and
the required rate of return on
investments of this nature is 16 per cent.
Grading for this assignment will be based on answer quality,
logic / organization of the paper, and language and writing
skills, using the following rubric.
Points: 250
Assignment 1: Identifying the Organizational Learning Issues
Criteria
Unacceptable
Below 70% F
Fair
70-79% C
Proficient
80-89% B
Exemplary
90-100% A
1. Assess the organization’s culture as it relates to shared
knowledge, then specify the significant issue(s) that you
discovered with the culture. Determine the disconnect you

12. observed between the culture and organizational learning using
three (3) of the five (5) mystifications. Support your response
with at least one (1) example of each selected mystification
within the organization.
Weight: 20%
Did not submit or incompletely assessed the organization’s
culture as it relates to shared knowledge, then did not submit or
incompletely specified the significant issue(s) that you
discovered with the culture. Did not submit or incompletely
determined the disconnect you observed between the culture and
organizational learning using three (3) of the five (5)
mystifications. Did not submit or incompletely supported your
response with at least one (1) example of each selected
mystification within the organization.
Partially assessed the organization’s culture as it relates to
shared knowledge, then partially specified the significant
issue(s) that you discovered with the culture. Partially
determined the disconnect you observed between the culture and
organizational learning using three (3) of the five (5)
mystifications. Partially supported your response with at least
one (1) example of each selected mystification within the
organization.
Satisfactorily assessed the organization’s culture as it relates to
shared knowledge, then satisfactorily specified the significant
issue(s) that you discovered with the culture. Satisfactorily
determined the disconnect you observed between the culture and
organizational learning using three (3) of the five (5)
mystifications. Satisfactorily supported your response with at
least one (1) example of each selected mystification within the
organization.
Thoroughly assessed the organization’s culture as it relates to
shared knowledge, then thoroughly specified the significant
issue(s) that you discovered with the culture. Thoroughly
determined the disconnect you observed between the culture and
organizational learning using three (3) of the five (5)
mystifications. Thoroughly supported your response with at

13. least one (1) example of each selected mystification within the
organization.
2. Give your opinion on the current Organizational Learning
Mechanism(s) (OLMs) that hinder organizational learning.
Support your response with one (1) example of a training or
learning initiative (e.g., sharing knowledge, training programs,
working as a team, experiences, procedures, processes, etc.) and
the outcome when it was applied to the organization.
Weight: 20%
Did not submit or incompletely gave your opinion on the current
Organizational Learning Mechanism(s) (OLMs) that hinder
organizational learning. Did not submit or incompletely
supported your response with one (1) example of a training or
learning initiative (e.g., sharing knowledge, training programs,
working as a team, experiences, procedures, processes, etc.) and
the outcome when it was applied to the organization.
Partially gave your opinion on the current Organizational
Learning Mechanism(s) (OLMs) that hinder organizational
learning. Partially supported your response with one (1)
example of a training or learning initiative (e.g., sharing
knowledge, training programs, working as a team, experiences,
procedures, processes, etc.) and the outcome when it was
applied to the organization.
Satisfactorily gave your opinion on the current Organizational
Learning Mechanism(s) (OLMs) that hinder organizational
learning. Satisfactorily supported your response with one (1)
example of a training or learning initiative (e.g., sharing
knowledge, training programs, working as a team, experiences,
procedures, processes, etc.) and the outcome when it was
applied to the organization.
Thoroughly gave your opinion on the current Organizational
Learning Mechanism(s) (OLMs) that hinder organizational
learning. Thoroughly supported your response with one (1)
example of a training or learning initiative (e.g., sharing
knowledge, training programs, working as a team, experiences,
procedures, processes, etc.) and the outcome when it was

14. applied to the organization.
3. Determine which one (1) of the following OLMs is suitable
for replacing the identified OLM(s) that hinder organizational
learning as a corrective action to facilitate the transition from
individual to organizational learning: Off-line/Internal, On-
line/Internal, Off-line/External or On-line/External. Justify your
selection.
Weight: 15%
Did not submit or incompletely determined which one (1) of the
following OLMs is suitable for replacing the identified OLM(s)
that hinder organizational learning as a corrective action to
facilitate the transition from individual to organizational
learning: Off-line/Internal, On-line/Internal, Off-line/External
or On-line/External. Did not submit or incompletely justified
your selection.
Partially determined which one (1) of the following OLMs is
suitable for replacing the identified OLM(s) that hinder
organizational learning as a corrective action to facilitate the
transition from individual to organizational learning: Off-
line/Internal, On-line/Internal, Off-line/External or On-
line/External. Partially justified your selection.
Satisfactorily determined which one (1) of the following OLMs
is suitable for replacing the identified OLM(s) that hinder
organizational learning as a corrective action to facilitate the
transition from individual to organizational learning: Off-
line/Internal, On-line/Internal, Off-line/External or On-
line/External. Satisfactorily justified your selection.
Thoroughly determined which one (1) of the following OLMs is
suitable for replacing the identified OLM(s) that hinder
organizational learning as a corrective action to facilitate the
transition from individual to organizational learning: Off-
line/Internal, On-line/Internal, Off-line/External or On-
line/External. Thoroughly justified your selection.
4. Evaluate the norms of the organization’s learning culture to
determine the source(s) that currently prevent productive
learning by applying two (2) of the following norms: inquiry,

15. issue orientation, transparency, integrity or accountability.
Provide at least one (1) example of each of the selected norms’
manifestation within the organization in your evaluation.
Weight: 20%
Did not submit or incompletely evaluated the norms of the
organization’s learning culture to determine the source(s) that
currently prevent productive learning by applying two (2) of the
following norms: inquiry, issue orientation, transparency,
integrity or accountability. Did not submit or incompletely
provided at least one (1) example of each of the selected norms’
manifestation within the organization in your evaluation.
Partially evaluated the norms of the organization’s learning
culture to determine the source(s) that currently prevent
productive learning by applying two (2) of the following norms:
inquiry, issue orientation, transparency, integrity or
accountability. Partially provided at least one (1) example of
each of the selected norms’ manifestation within the
organization in your evaluation.
Satisfactorily evaluated the norms of the organization’s learning
culture to determine the source(s) that currently prevent
productive learning by applying two (2) of the following norms:
inquiry, issue orientation, transparency, integrity or
accountability. Satisfactorily provided at least one (1) example
of each of the selected norms’ manifestation within the
organization in your evaluation.
Thoroughly evaluated the norms of the organization’s learning
culture to determine the source(s) that currently prevent
productive learning by applying two (2) of the following norms:
inquiry, issue orientation, transparency, integrity or
accountability. Thoroughly provided at least one (1) example of
each of the selected norms’ manifestation within the
organization in your evaluation.
5. 5 references
Weight: 5%
No references provided.
Does not meet the required number of references; some or all

16. references poor quality choices.
Meets number of required references; all references high quality
choices.
Exceeds number of required references; all references high
quality choices.
6. Writing Mechanics, Grammar, and Formatting
Weight: 5%
Serious and persistent errors in grammar, spelling, punctuation,
or formatting.
Partially free of errors in grammar, spelling, punctuation, or
formatting.
Mostly free of errors in grammar, spelling, punctuation, or
formatting.
Error free or almost error free grammar, spelling, punctuation,
or formatting.
7. Appropriate use of APA in-text citations and reference
Weight: 5%
Lack of in-text citations and / or lack of reference section.
In-text citations and references are provided, but they are only
partially formatted correctly in APA style.
Most in-text citations and references are provided, and they are
generally formatted correctly in APA style.
In-text citations and references are error free or almost error
free and consistently formatted correctly in APA style.
8. Information Literacy / Integration of Sources
Weight: 5%
Serious errors in the integration of sources, such as intentional
or accidental plagiarism, or failure to use in-text citations.
Sources are partially integrated using effective techniques of
quoting, paraphrasing, and summarizing.
Sources are mostly integrated using effective techniques of
quoting, paraphrasing, and summarizing.
Sources are consistently integrated using effective techniques of
quoting, paraphrasing, and summarizing.
9. Clarity and Coherence of Writing

17. Weight: 5%
Information is confusing to the reader and fails to include
reasons and evidence that logically support ideas.
Information is partially clear with minimal reasons and
evidence that logically support ideas.
Information is mostly clear and generally supported with
reasons and evidence that logically support ideas.
Information is provided in a clear, coherent, and consistent
manner with reasons and evidence that logically support ideas.