Question

You are required:

1. Explain the relevance of each of the items of economic data listed above to NordicPressen!

2. Explain whether NordicPressen should continue with their expansion plans. Clearly justify for arguments for or against expansion. Give at least 3 arguments “for” and 3 arguments “against”!

dow Help 1.Assignment (2019.01.28) NordicPressen NordicPressen operates a chain of newsagents and coffee shops in the south of Northern European country, and are considering the possibility of expanding their business across a wider geographical area. The business was started in 2002 and annual revenue grew to 10 million euro by the end of 2016, Between 2016 and 2009 revenue grew at an average rate of 2% per year. The business still remains under family control (company registered as limited liability company) but the high cost of expansion via the purchase or building of new outlets would mean that the family would need to raise at least 2 million euro in equity or debt finance. One of the possible risks of expansion lies in the fact that both tobacco and newspaper sales are falling. New income is being generated by expanding the product range stocked by the stores, to indude basic foodstuffs such as bread and milk. NordicPressen purchases all of its products from a large wholesale distributor which is convenient, but the wholesale prices leave NordicPressen with a relatively small gross margin. The key to profit growth for NordicPressen lies in the ability to generate sales growth, but the company recognises that it faces stiff competition from large food retailers in respect of the prices that it charges for several of its products. In planning its future, NordicPressen was advised to look carefully at a number of external factors which may affect the business, including government economic policy and, in recent months, the (i) Bank base rate has been reduced from 5% to 4.5%, and the forecast is for a further 0.5% reduction within six months (ii) The annual rate of inflation is now 2.2%, down from 2.3% in the previous quarter, and 2.7% twelve months ago. The rate is now at its lowest for 25 years, and no further falls in the rate are expected over the medium/long term. (iäi) Personal and corporation tax rates are expected to remain unchanged for at least 12 months (iv) Taxes on tobacco have been increased by 10% over the last 12 months, although no further increases are anticipated (v) The government has initiated an investigation into the food retail sector focusing on the problems of 'excessive' profits on certain foodstuffs created by the high prices being charged for these goods by the large retail food stores MacBook Pro

Answer 1

A)

1) The base rate is the minimum rate set by the Reserve Bank of a country, below which the banks cannot lend the money to a customer in the form of loans etc.

So the reduction in the base rate by 1 % (0.5 + 0.5) will act in favour of Nordic Pressen as they will be able to get a good amount of borrowed money from bank as required for different investment opportunities. Therefore low base rate will enable to get easy funds from banks.

2) when inflation rate falls below normal , the prices of products will decrease because the supply of goods is more than the demand for goods, which results in reduction of price per unit. Thus reduction in inflation will make Nordic Pressen to make less money and to survive in cut throat competition the company would need to decrease the costs incurred to earn profits.

3)If the corporate tax rate remains unchanged, it means there will neither any positive affect on Nordic Pressen such as more revenue and nor there will be any negative affect on the company such as decreased revenue .

4) The increase in the tax rate of tobacco will obviously result in more cost incurred , resulting in high prices charged by the company in order to cover the increased cost , which will decrease the sales of the company , therefore less revenue will be earned , eventually resting in less profits made by the company overall.

5)Due to the increase investigations by the government in retail stores , the company would need to justify the amount of price charge on a particular product , the failures of which will result in consequence or forceful decreasing the price of that product not being justified.

B) Expansion Policy:

Arguments in favour of continuing the expansion policy :

The company Nordic Pressen should continue to expand the business because:

Expansion will result in adding more product lines to the current business which can make up,,, to the decreased revenue ,of company as in case of tobacco. The decreased sales of tobacco are costing the business a lot with respect to revenue and profits , thus through expansion , if a new product line such as cosmetic or beauty products will be added which has a large scope of success due to the already brand recognition of company , this will result in increase in sales , and increase in profits.

Expansion can also reduce the cost per unit also. . Expansion will enhance the efficiency in utilization of resources , reduction in wastages , no idle staff, effectiveness in conducting operations and methods of business etc which will decrease the cost incurred on products as now more production capacity will be enhanced.

Expansion will integrate the activities of business, address to the deficient areas , coordinate the efforts of personnel by making a business grow through adapting to the changes.

By making business resistant to change , the company will be now able to operate efficiently , attract the top talents , the organisational structure will be now advanced and updated if necessary.

Arguments against Expansion:

Nordic pressen should not continue with the expansion plans because:

Expansion brings with itself a large amount of risk , uncertainties and complexities. The expansion policy might fail or not be that successful as expected to bring a targeted amount of revenue , or might lead to change in the organisational setup and advanced technology which might not be supported by the existing employees or management creating difficulties, the project proposed might not go the way that the company expected. Due to the change in organisational setup the company personnel might not be able to coop up with the new facilities decreasing the efficiency in initial period

Expansion might require training to the new staff, which will take time , thus delay in the production until the personnel is properly trained. Recruitment process might also take time to chose the employees that match the requirements of a job.

This whole process may prevent the immediate start of the operations and will result in increased cost in the form of opportunity cost.

The expansion policy as proposed by the company might exceed the budget formalised by the company creating financial problems.

Financial problems might result in various complexities such as debt burden , decrease in value of equity if dividend is not paid regularly , reduction in credibility , decrease in employee commitments if compensation are not paid on time , and decrease in customer loyalty.

Dear student hope i explained well.

Good luck with submission.

Sorry for any typing mistake , check thoroughly .

God bless.