Investment Appraisal for Mark & Paul

This assignment presents two investment opportunities for university students Mark and Paul. The first involves opening a restaurant, requiring hands-on experience and financial planning. The second is investing in a new business venture on the Gold Coast with other venture capitalists. The document evaluates both options using key financial metrics like NPV, ARR, and Payback Period to determine the most viable choice for Mark and Paul, considering their limited experience and resources.

Running head: ACCOUNTING FOR BUSINESS
Accounting for Business
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
1.0 Introduction..........................................................................................................................2
2.0 Nature and Scope of Investments.........................................................................................2
3.0 Investment Opportunity One Budgets..................................................................................2
3.1 Sales Budget.........................................................................................................................2
3.2 Labour Budget......................................................................................................................3
3.3 Cash Budget.........................................................................................................................3
3.4 Overview and Analysis of Budgets......................................................................................4
3.5 Practical issues associated with investment:........................................................................4
4.0 Investment Opportunity Two Evaluation.............................................................................5
5.0 Comparison of Investment Opportunities............................................................................6
Reference:..................................................................................................................................7

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1.0 Introduction
The overall evaluation of the assignment mainly evaluates the financial services that
could be used in identifying the value of investment appraisal techniques. In addition, the
investment appraisal techniques are mainly used in evaluating the investment proposal, which
could help in identifying the viable investment option for Mark and Paul.
2.0 Nature and Scope of Investments
There are two different types of investments, which could directly help in generating
the relevant return from investment. The first investment directly provides a relevant
investment of around $261,000 initially, while the second investment needs around $390,000.
Both the investments intend to provide relevant returns from investment in near future, which
could direly help in generating higher profits from operations (Bodie 2013). The first
investment scope needs hard work and operational capability from Mark and Paul for running
the restaurant. However, the second investment scope only need venture capital investments
from Mark and Paul.
3.0 Investment Opportunity One Budgets
3.1 Sales Budget
Sales Budget
August September
Particulars Meal Drink Meal Drink
Sales Volume of drink 20,000.00 60,000.00 18,000.00 54,000.00
Selling price $ 45.00 $ 6.00 $ 45.00 $ 6.00
Sales $ 900,000.00 $ 360,000.00 $ 810,000.00 $ 324,000.00

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Total sales per month $ 1,260,000.00 $ 1,134,000.00
3.2 Labour Budget
Labour Budget
Particulars August September
Per hour rate $ 23.00 $ 23.00
Working hours 6.00 6.00
Number of staff 3.00 3.00
Working day per week 6.00 6.00
Number of week in month 4.00 4.00
Total labour cost per month $ 9,936.00 $ 9,936.00
3.3 Cash Budget
Cash Budget
Particulars June July August September
Cash Collection $ 1,260,000.00 $ 1,134,000.00
Cash paid for drinks $ 2,000.00 $ 11,000.00 $ 20,000.00
Cash paid for meals $ 40,000.00 $ 40,000.00
Overheads $ 5,000.00 $ 5,000.00 $ 5,000.00 $ 5,000.00
Labour cost $ 9,936.00 $ 9,936.00
Drawings $ 20,000.00 $ 20,000.00 $ 20,000.00 $ 20,000.00
Noncurrent assets $ 201,000.00

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Available Cash $ (226,000.00) $ (27,000.00) $ 1,174,064.00 $ 1,039,064.00
Add openings cash balance $ 80,000.00 $ (146,000.00) $ (173,000.00) $ 1,001,064.00
Closing cash balance $ (146,000.00) $ (173,000.00) $ 1,001,064.00 $ 2,040,128.00
3.4 Overview and Analysis of Budgets
The evaluation of the sales budget mainly states that relevant income from operations
is been generated, where meals sales are relatively generating higher revenue. Moreover, the
sale of drinks is triple of the sales that are generated from meals (Scott 2016). Therefore, the
sale budget mainly represents the sales that is been conducted in August and September, as
the overall restaurant started in August. The selling price per meals is $45 and for drinks is
$6, which provides a total revenue of $ 1,260,000 in August and $ 1,134,000 in September.
The overall labour budget mainly represents the expenses that is been conducted by
the restaurant on labour. The overall estimation of the wage rate is $23 per hour, which
directly makes the labour expense on month basis at $9,936.
The evaluation of the cash budget mainly helps in representing the overall cash flow
of the investment that is been conducted by the organisation. The relevant cash flow from
investment could be seen from the cash budget (Einsele 2013). Moreover, the closing cash
balance in June and July was negative, while from August the cash flow closing balance
becomes positive, as revenue generated from operations was relevantly high. Hence, the
closing cash balance of September is estimated to be at $ 2,040,128.00.
3.5 Practical issues associated with investment:
The major practical issues that could be identified from the restaurant investment
proposal are the experience that is needed for running the restaurant. The main practical issue

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that could be identified from the evaluation is the experience, which is needed by Mark and
Paul for running the business. However, there are no specifics information regarding the
experience that is gather by Mark sand Paul. Moreover, Mark and Paul are university students
in marketing, which hardly provides any kind of experience in running the restaurant business
and estimating the costs of the investment.
4.0 Investment Opportunity Two Evaluation
Cost of capital 12%
Year Cash flow Cumulative cash flow
0 $ (390,000) $ (390,000)
1 $ 100,000 $ (290,000)
2 $ 230,000 $ (60,000)
3 $ 190,000 $ 130,000
4 $ 140,000 $ 270,000
NPV $ 106,851.08
ARR 42.31%
Payback Period 2.3 years
The evaluation of the NPV, ARR and Payback period directly indicates that the
investment is a viable option, which could directly help Mark and Paul to generate higher
revenue from investment. The NPV directly indicates that the investment will provide an
additional income of $106,851.08 from investment. Moreover, the ARR is at 42.31%, which
is relatively higher than cost of capital and Payback period is at 2.3 years, which is fairly
early. These evaluations directly indicate that the project is relevantly viable and could
provide higher returns from investment (Gotze, Northcott and Schuster 2016).

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5.0 Comparison of Investment Opportunities
The comparison of the two businesses mainly helps in identifying the relevant income
that could be generated from the business opportunity. However, there are different types of
non financial investment decisions, which need to be conducted for evaluating the business
opportunity. However, from the evaluation it could be understood that the first investment
options directly involves involvement of Mark and Paul in restaurant business, where both
the individuals does not have any kind of experience. Moreover, Mark and Paul are university
students studying marketing, while the financial evaluation and estimation conducted in the
first investment option could be problematic options for both the individuals.
However, the second investment options is a a new business development on the Gold
Coast with other venture-capital investors. In this investment options Mark and Paul would
only have to invest the money and there is no personnel involvement in the business.
Therefore, the experience in running the business is not needed. Hence, the business could
directly allow Mark and Paul to generate relevant income from investment, while reducing
their involvement in the business. Thus, investment in the second proposal is much better
option for Mark and Paul.

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Reference:
Bodie, Z., 2013. Investments. McGraw-Hill.
Einsele, G., 2013. Sedimentary basins: evolution, facies, and sediment budget. Springer
Science & Business Media.
Gotze, U., Northcott, D. and Schuster, P., 2016. INVESTMENT APPRAISAL. SPRINGER-
VERLAG BERLIN AN.
Scott, P., 2016. Accounting for Business. Oxford University Press.