BUSINESS 114
Assignment 1 S1 2025
Due: 28 March 11:59pm (NZT)
Assignment 1 will be marked out of 50 marks and is worth 10% of your final grade.
Overall Presentation
Submission: Type your answers into the Answer booklet and submit your assignment by 11:59pm o
28 March 2025 via Canvas. Please keep a copy of your assignment incase there are technical issues with your submission.
A WORD document or PDF file of your assignment must be submitted on Canvas. Please follow the instructions below to submit your assignment.
1. Save your assignment as a WORD document or PDF file.
2. Rename your assignment file name to your last name, followed by a comma and your first name. For example: Bloggs, Joe A1. (The last name is Bloggs; A1 is Assignment 01).
3. You can upload the file on Canvas by going to Assignments, then click on Assignment 01. You will see the Submit Assignment button on the right-hand side of the webpage. A message box will show up, and you need to click on the Choose File button to locate your assignment file, which you had renamed in the above steps, and click OK. The last step will be clicking the Submit Assignment button in the new message box to submit your file.
Note: If you want to replace the existing file you can simply repeat the step 3 above. You can do that any time before the due date.
Answer Booklet: Answers must be typed into the Answer Booklet using Calibri font style of at least size 10. This provides practice for answering questions in the exam booklets. If calculations or tables are required for an answer, they should be typed, set out neatly and labelled clearly in the Answer Booklet in the space provided. Bullet point answers are acceptable only if the whole sentence makes sense. The size of each box to answer each question is intended to be enough to answer the question, however, boxes can be expanded if necessary.
Disciplinary knowledge: The purpose of this assignment is to be able to demonstrate an understanding of the material covered in Modules 1 to 3 and apply appropriate methods to solve problems and explain the impact of events on business activity.
Solution seeking: For any calculation type questions, you should apply appropriate problem-solving processes systematically. Show all workings, no matter how trivial as marks are awarded for partial work. This is good practice for the exam.
Written Communication: A high standard of written expression and presentation is expected of your
assignment. Correct spelling and grammar are essential. Discussions should be concise, structured
in a logical order, and relevant to the question. Consider using the resources of the Learning Hub
for extra support. https://www.learninghub.ac.nz/writing/paraphrasing-summarising-and- techniques/
Referencing: APA referencing is to be used where necessary. You DO NOT need to reference the assignment question or references provided in the question. However, you DO need to reference any text if you have QUOTED or PARAPHRASED it. Always answer the questions in your own words. (See the library course page for details on how to use APA referencing).
Refer toReferenCite - Quick©ite - APA 7th (auckland.ac.nz)
If you feel you need to provide references – space is provided for your references to all the questions at the end of the answer book – this space can be expanded.
Questions 50 marks
QUESTION 1: Budgeting and Professional Emails (27 marks)
Frosty Delights Ice Cream Shop is located in a busy beachfront area. The shop’s peak season runs from January to March, with customers flocking to enjoy its popular ice cream products. Paul, the store manager, and Kelvin, the accountant, are preparing the financial budgets for the first quarter of 2025.
Below is the information you will need to assist them in planning for the upcoming season.
Frosty Delights sells three main products: Ice Cream Cones, Cups, and Sundaes. The table below shows the budgeted selling prices and cost prices per unit for each product.
Product Details for Q1 2025:
|
Product Name
|
Selling Price ($)
|
Cost Price ($)
|
|
Ice Cream Cones
|
5
|
2
|
|
Ice Cream Cups
|
6
|
3
|
|
Ice Cream Sundaes
|
8
|
4
|
The following table outlines the expected monthly sales volume for each product over the first quarter of 2025.
Projected Sales for January to March 2025:
|
Month
|
Ice Cream Cones
|
Ice Cream Cups
|
Ice Cream Sundaes
|
|
January
|
1,500
|
1,200
|
1,000
|
|
February
|
1,000
|
1,000
|
700
|
|
March
|
800
|
800
|
500
|
To ensure smooth operations, Frosty Delights plans to maintain an adequate stock of each product by purchasing inventory in advance. The table below shows the planned purchases for each product over the quarter.
Projected Inventory Purchases for January to March 2025:
|
Month
|
Ice Cream Cones
|
Ice Cream Cups
|
Ice Cream Sundaes
|
|
January
|
1,200
|
900
|
600
|
|
February
|
1,400
|
1,100
|
800
|
|
March
|
1,800
|
1,600
|
900
|
Additional Business Information
• Introduction of Credit Sales: In Q1 2025, Frosty Delights secured a contract with a local events company to supply ice cream products at various summer festivals. These sales will be made on credit, accounting for 20% of total revenue. For credit sales, 60% is expected to be collected in the month of sale, 30% in the following month, with the remaining 10% anticipated to remain uncollectible.
• Payment for Purchases: All inventory purchases are paid in the subsequent month. Purchases in December 2024 amounted to $2,000.
• Insurance Expense: An annual insurance payment of $2,500 is due and paid for in March.
• Maintenance & Repairs expenses: $1,500 is due and paid for in March.
• Monthly Expenses: The store incurs the following monthly expenses, paid within the same month:
o Salaries: $5,000 per month.
o Rent: $5,000 per month.
o Utilities Expenses: $2,000 per month (covering power, water phone, internet, etc.).
o Marketing and Advertising: $800 in January; $900 in February; and $1,000 in March.
Required:
(a) Prepare a Sales Budget for Frosty Delights Ice Cream Shop for the first quarter of 2025. (9 marks)
(b) Prepare an Inventory Purchases Budget for the first quarter of2025. (2 marks)
(c) Prepare an Other Expenses Budget for general expenses for the first quarter of2025. (2 marks)
(d) Prepare a Cash Budget for the first quarter of 2025, assuming that at the beginning of January 2025, the business has a cash balance of $2,000. (5 marks)
(e) Using the results from part (d) of this question and the email template provided below, write a professional email from the accountant, Mr. Kelvin White ([email protected]) to the store manager, Paul, at [email protected], that provides a quarterly update on the company's cash position and suggesting methods to improve the monthly cash balance.
The email should be no longer than 550 words and must include the following details:
1. Quarterly Cash Flow Summary: Provide a summary of the cash inflows and outflows for Frosty Delights Ice Cream Shop during the first quarter of 2025, highlighting any significant transactions or patterns.
2. Financial Health Indicators: Discuss two key indicators that reflect the financial health of the business, using data from the cash budget.
3. Operational Adjustments: Recommend two operational adjustments that could help manage cash flow more effectively in future quarters.
To help you with this task, you will use the AI website ChatGPT (ChatGPT: Optimizing Language Models for Dialogue (openai.com)) as follows:
1. Generate Variations:
o Create three different versions of the professional email using ChatGPT (or any other AI model).
o Paste each version in your booklet with the reference: "Generated by ChatGPT - Version 1", "Generated by ChatGPT - Version 2", and "Generated by ChatGPT - Version 3".
2. Craft the Final Email:
o Review the three versions and identify the most effective parts from each.
o Combine these selected parts, along with your own ideas, to write a final, polished version of the professional email in your own words.
o Ensure that your final email follows the PAPER Model as taught in Module 1 on Canvas.
QUESTION 2: Time Value of Money (23 marks)
Part (a) – Investing in a Franchise
Jordan is considering purchasing a franchise license to open a restaurant. The total license fee is $250,000, and the franchise company offers two payment options. However, Jordan also wants to consider a third option: delaying the purchase and saving up the full amount over 3 years.
Payment Options Available:
Option 1: Immediate Payment Discount
• Pay $250,000 upfront now.
• Receive a 5% discount on the total license fee if the full amount is paid immediately.
Option 2: Deferred Payment Plan
• Pay the license fee in equal instalment amounts over 5 years.
• The franchise company charges an interest rate of 8% per annum, compounded quarterly.
• Payments are made at the beginning of each quarter.
Option 3: Wait and Save
• Wait for 3 years and invest the initial $250,000 in a business savings account that earns 4% interest per annum, compounded annually.
• After 3 years, the franchise company expects to increase the license fee by 10% due to inflation and rising costs. This is an estimate and may vary based on market conditions.
Required:
i. Calculate the present value of the license fee that Jordan will pay upfront if he chooses the Immediate Payment Discount (Option 1). Show your workings and round your answer to two decimal places. (1 mark)
ii. Calculate the total amount of the payments Jordan would make under the Deferred Payment
Plan (Option 2). Show your workings and round your answer to two decimal places. (4 marks)
iii. If Jordan chooses the Wait and Save option (Option 3), calculate how much money he would have in the savings account at the end of 3 years if he invests the $250,000 at 4% interest per annum, compounded annually. Then determine whether this amount will be enough to cover the increased franchise license fee, which is expected to rise by 10% after 3 years. Show your workings and round your answer to two decimal places. (3 marks)
Part (b) 一 Saving for a Holiday
Emily has a dream of taking a luxury cruise in 15 years, which currently costs $50,000. To pay for this, she plans to invest $25,000 in a fixed deposit account offering an annual interest rate of 6% compounded annually. Based on projections, her investment will grow to approximately $59,915 by the end of 15 years. However, if there is inflation, the cruise price could also rise to $77,900 in 15 years
time.
Required:
i. Is Emily s fixed deposit plan a good strategy for achieving her goal? Consider the effects of inflation, compounding interest, and opportunity cost. (2 marks, max 200 words)
ii. Suggest one alternative savings or investment strategy she could consider to better align her savings with her goal. Explain the potential benefits and risks. (2 marks, max 200 words)
iii. Conclude with your opinion on whether Emily should stick to her current plan or revise it, supported by your reasoning. (1 mark, max 100 words)
Part (c) 一 Retirement
You are a financial advisor specializing in retirement finance issues. Sarah has come to you with some questions about her retirement plans. Sarah has just turned 40 years old.
Required:
i. Sarah has saved $60,000 and believes this amount is sufficient for retirement if she invests it until she turns 65, without adding any further savings. If Sarah invests this money in an account with an interest rate of 9% per annum that compounds annually, how much will her retirement savings be worth when she retires at 65? (Round to two decimal places). (3 marks)
ii. Sarah realises that the amount from your answer in part (i) of this question is not enough for retirement. She asks if she starts making deposits of $4,000 at the end of each month into a new account with an interest rate of 12% per annum, compounded monthly, how many months will it take for these deposits to reach a value of $326,680? (consider this schedule of cash flows independently of part (i) of this question). (Round to two decimal places). (3 marks)
iii. KiwiSaver is a retirement savings scheme set up by the New Zealand Government. Visit the website https://www.ird.govt.nz/kiwisaver/kiwisaver-individuals/kiwisaver-benefits and find the following information:
a. The minimum percentage an employer must match to an employee's own contribution. (1 mark)
b. The maximum annual government contribution and the minimum member contribution. (1 mark)
c. Compare KiwiSaver to at least one other retirement savings option available in New Zealand (e.g., personal savings accounts, term deposits, or managed funds). Consider aspects such as contributions, risk, and long-term growth potential. Which option do you think is better for long-term retirement planning, and why? (2 marks, max 200 words)