Investment Appraisal: A Comparative Analysis of Projects A and B

This report presents a comprehensive evaluation of two projects (A and B) using various financial techniques such as Net Present Value (NPV), Internal Rate of Return (IRR), and Discounted Cash Flow. The analysis shows that Project A generates a higher NPV at a 10% discount factor (£69,939 vs £26,474) and has a higher IRR compared to Project B. Additionally, the report discusses the importance of decision-making in business and how various analytical techniques can aid in making informed decisions. Finally, it concludes that based on both NPV and IRR calculations, Project A is deemed feasible for investment by the company.

BUSINESS DECISION MAKING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Background............................................................................................................................1
1.1 Rationale................................................................................................................................1
1.1 Objective of Research............................................................................................................1
1.2 Methodology..........................................................................................................................2
1.2 Data Analysis section............................................................................................................2
1.2 Time Frame............................................................................................................................2
1.2 Budget....................................................................................................................................3
1.3 Questionnaire.........................................................................................................................3
TASK 2............................................................................................................................................5
2.1 & 2.2 Mean, Mode and Median.............................................................................................5
2.3 Range and Standard Deviation..............................................................................................7
2.4 25th Percentile (Lower iii..........25th Percentile (Lower Quartile) and 75th Percentile (Upper
Quartile) and use of Percentile....................................................................................................8
2.4 Calculate correlation coefficient using the additional information provided and discuss it
advantages to a business..............................................................................................................9
TASK 3..........................................................................................................................................10
3.1 & 4.1 Produce line graph.....................................................................................................10
Pie chart.....................................................................................................................................11
Bar charts...................................................................................................................................11
Scatter Plot on Advertising and Sales Costs..............................................................................12
3.2 & 4.1 Trend lines.................................................................................................................12
3.3 Covered in power point presentation...................................................................................14
3.4 Formal Business Report.......................................................................................................14
TASK 4..........................................................................................................................................16

4.2 Prepare a network diagram for activities using Microsoft Project......................................16
ii) Calculate Project Duration....................................................................................................16
iii) Clearly mark the Critical Path..............................................................................................16
iv) Prepare a Gantt chart and state the benefits of using it as a Project Management Tool......17
TASK 4 B......................................................................................................................................17
4.3 Calculation of Net present value and Internal rate of return...............................................17
Recommendation.......................................................................................................................20
CONCLUSION..............................................................................................................................20
REFERENCES..............................................................................................................................22

INTRODUCTION
Looking at the present condition of corporate world, decision making is one of the major
aspects that managerial level people has to carry out in effective and suitable manner. Increasing
level of competition has force the managers to ensure that they make decision considering all the
facts and findings (Brennan and Perkins, 2012). Present research project focuses on evaluating
importance of different financial tools that are essential for understanding the trends and
environment and helping the course for the managers in making suitable and reliable decisions.
Further, different scenarios have been considered in order to enhance the knowledge of the
learners regarding making effective decisions in different situations.
TASK 1
1.1 Background
Decision making is crucial aspect for every business and it is the duty of senior managers
to make sure that they undertake suitable and smart decisions so that desired results and
outcomes can be generated. In the present study, Crossrail one of the Europe’s largest
construction project for improving the journey times across London. The main purpose of this
project is to improve the way people travel around the capital of UK. In this regard, investigator
focuses on indulging different means of collecting data so that adequate amount of information
can be collected and Government of UK can understand the significance of Crossrail project for
the local community.
1.1 Rationale
Rationale behind conducting this study is to evaluate and analyze the benefits of Crossrail
Project for the local people of London. However, in regard to government, it is planning to
enhance the traveling experience and making safer for the people to travel from one local place
to another. Thus, through the means of this study researcher will evaluate the significance of
cited project for both government of UK and local people of London.
1.1 Objective of Research
The main objective of research is to evaluate the significance and benefits of Crossrail
project for the local community of London. Following are the three main objective of the current
study that researcher focuses on achieving:
 To examine the advantages of Crossrail project for the general public.
 To evaluate the financial benefits of the project for the economy of London.
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 To analyze whether Crossrail project assist in maintaining overcrowding at railway
station.
1.2 Methodology
Considering the nature of present study, researcher has focused on gathering data through
the help of both qualitative and quantitative techniques. In order to collect primary data, survey
methodology has been selected in which sample size has been selected with help of purposive
sampling technique and on the basis of which 30 front line managers of the Crossrail project will
be given the questionnaire and open and close ended questions will be asked to them about the
Crossrail project. The main purpose of collecting primary data is that it will helps in gathering
the information regarding aim and objectives of the Crossrail project for the government,
Construction Company and local people of London. Furthermore, data collected by the means of
survey methodology will be used for quantitative analysis so that actual findings in terms of
numbers can be generated and suitable interpretation can be made (Cooper and Schindler, 2003).
On the other hand, secondary data helps in gathering wide range of information regarding the
selected project so that appropriate theoretical base can be made which helps in making suitable
and reliable decisions regarding the project. By the means of secondary data, researcher can
evaluate different aspects of the project such as general information about the project which is
crucial in terms of understanding the significance of Crossrail project for the local people.
1.2 Data Analysis section
According to present given scenario, researcher will use qualitative analysis method for
analyzing the collected data. However, in this investigator will use graphical presentation to
present the data in effective manner as well as suitable for the learners or readers to understand
the findings (Audi, 2012). The main purpose behind using qualitative method of analyzing the
data is that it will assist researcher in understanding each and every aspect about the Crossrail
project. Furthermore, through data analysis section researcher will able to evaluate whether
Crossrail project is beneficial for the local community of London or not.
1.2 Time Frame
Looking at the nature of present study, it is important for the investigator to make in-
depth analysis. However, for making accurate and correct research, time factor is one of the most
significant factor considered (Fassin, Rossem, and Buelens, 2011). Hence, to maintain the
validity and reliability of the project, researcher should take adequate amount of time for
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carrying out the entire course of research on identifying the significance of Crossrail project for
the Local community of London. Therefore, time frame has been defined to carry out whole
research is as follows:
Activities/ duration in days 2 4 6 8 10 12 14 16
Contextual analysis
Defining realistic objectives
of the research
Methodology for designing
the entire plan of research
Collecting primary and
secondary data
Analysis of the collected
information
Budget for the whole
research
Determining the whole
research Approach
1.2 Budget
For the conducting the entire course of study in effective and suitable manner, £1000 has
been budgeted. Following are expenses bifurcated under the overall amount of £1000:
Expenses Amount
Research collection from secondary data £250
Research collection from Primary data £400
Stationary costs £150
Fuel Cost £100
Miscellaneous expenditure £100
Total £1000
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1.3 Questionnaire
Demographic
Name:
Ques1: Gender
 Male
 Female
Ques2: Age:
 16-20 years
 21-25 years
 26-30 years
 31-35 years
 36-40 years
 41-45 years
 >46 years
Case study Questions
1. Are you aware about the Crossrail project of the UK government?
 Yes
 No
2. According to you, what are (can specify more than one) the major benefits of Crossrail
project?
 Improving overall journey time across London
 Easy crowding
 Appropriate Connectivity
 Change and improvement in the way people travel around London
3. Do you agree on the fact that, Crossrail project will ensure in improving the rail
transportation and cut journey time across city?
 Strongly Agree
 Agree
 Neutral
 Disagree
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 Strongly Agree
4. To which extent you believe that, Crossrail project will enable further economic
development in the London?
 Agreed
 Neutral
 Disagreed
5. Will the services offered by the Crossrail Project influence to use it?
 Yes
 No
6. Please, provide appropriate suggestions for improving benefits of Crossrail project for
local community of central London
TASK 2
2.1 & 2.2 Mean, Mode and Median
Amount Spent
(£)
No. of customers
(f) Mid- value(x) fx
Cumulative Frequency
(CF)
10-20 20 15 300 20
20-30 22 25 550 42
30-40 20 35 700 62
40-50 14 45 630 76
50-60 16 55 880 92
60-70 10 65 650 102
70-80 8 75 600 110
80-90 6 85 510 116
90-100 4 95 380 120
120 5200
Mean ∑FX/ n 43.33
Median L + (n/2- 39
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CF)/f*h
Mode
Lmo + (Δ1/
Δ1 + Δ2) * i 25
From the above Descriptive analysis various elements have been evaluated. However,
through the help of these elements investigator can present valuable and reliable information for
the learners and readers so that they can make suitable decisions.
 Mean – In general mean can be defined as the sum of gathered data through the means
primary and secondary sources (Salkey, 2006). In the present given scenario, descriptive
analysis of number of customers and their actual spending on cloths has been computed
so that, owner of Carmen clothing shop can take appropriate decision regarding in-store
promotion.
Mean = Total of fx/ Total of number of customers
= 5200/120
= 43.33
 Mode – In the statistical terms, mode refers to the number which frequently appears
within the collected information (Young, Owen and Connor, 2011). Amount spent £20-
£30 has a highest frequency to 22 customers. Therefore, mode is calculated as under
= 20 + (22-20) / (22-20) + (22-20)* 10
= 25
 Median – Commonly it is termed as the middle value of the gathered information
(Marsden and Belfield, 2006). In context to the present study, median of data generated
is:
Median = lower limit + (60- CF of previous class interval)/Frequency * class interval
= 30 + (60-42)/20*10
= 30+18/20 *10
= 30+9
= 39
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2.3 Range and Standard Deviation
Amount Spent
(£)
No. of customers
(f) Mid- value(x) X^2 fx^2 fx
10-20 20 15 225 4500 300
20-30 22 25 625 13750 550
30-40 20 35 1225 24500 700
40-50 14 45 2025 28350 630
50-60 16 55 3025 48400 880
60-70 10 65 4225 42250 650
70-80 8 75 5625 45000 600
80-90 6 85 7225 43350 510
90-100 4 95 9025 36100 380
120 495 33225
28620
0
520
0
Variance s2 = ∑Fx2 – ((∑Fx)2/n)/ n – 1
511.4
8
Std. deviation S= √s 2 22.61
Range
=
(100-(10/(20+1))-(10/(4+1))) 97.52
In general, measure of dispersion can be defined as the process through the help of which
investigator can easily evaluate or analyze how wide or spread the set of given information is in
the defined variables. There are several elements of measure of dispersion but for the current
study, researcher has selected two of its most crucial elements such as: Range and Standard
deviation.
 Standard Deviation – The main purpose behind computing standard deviation is to
evaluate and analyze the amount of variation of a given set of data or the figures
(Maxwell, Jeffrey and Lévesque, 2011). However, standard deviation for the data
generated for the managers of evaluate whether to go for below 40 price of products or
above it. Henceforth, the standard deviation of the given data is 22.61.
Variance = s2 = ∑Fx2 – ((∑Fx)2 /n)/ n – 1
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Variance = 511.48
Standard Deviation = S= √s 2
Standard Deviation = 22.61
 Range – The main purpose of computing range is to evaluate and identify the difference
between the highest value and the lowest value in the present given set of numerical
information (Black, 2011).
Range = (100-(10/ (20+1))-(10/ (4+1)))
Range = 97.52
2.4 25th Percentile (Lower iii. 25th Percentile (Lower Quartile) and 75th Percentile (Upper
Quartile) and use of Percentile
Quartile:
In general terms, quartile can be defined as the process of dividing list of number into
four quarters. However, the first quarter is denoted as (Q1) which refers to the middle number
between the smallest number and the median of the defined set of data. Further, the second
quartile (Q2) refers to the median of data and the third quartile (Q3) is defined as the middle
value between the median and the highest value of the given set of the data (Anandarajan,
Anandarajan and Srinivasan, 2012).
Percentile:
Percentile is the measure undertaken in the statistics indicating the value below which a
given percentage of observation in a group of observation falls. However, 25th Percentile assist in
defining that the total number of values that come under the 25 percentage of total value. Further,
it also defined as lower quartile. On the other hand, 75th Percentile represents the value that assist
in identifying the values which falls under 75 percentage to the total observation. They are also
called as the upper quartile (Chi and Javernick‐Will, 2011).
Lower quartile/25th percentile 24.5
Upper quartile/75th percentile 58.8
Interquartile:
Commonly, inter-quartile range refers to the measure of variability that is based upon
dividing the given set of data into four quarters or quartile. Furthermore, it is the different
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between upper quartile and lower quartile. For example: different between 75th Percentile and
25th percentile.
Interquartile range 34.2
2.4 Calculate correlation coefficient using the additional information provided and discuss it
advantages to a business
Correlation coefficient focuses on evaluating the interdependencies of two variables on
one another. However, it is most significant approach of calculating the relationship between two
variables. In the present study, correlation coefficient between sales and units and discount
provided by the owner of Carmen Clothing Shop has been evaluated (Manshu, 2010). However,
lower the sales units, the lower discount offered by the company and higher the sales units leads
to increasing discount by the shopkeeper. Following is the computation of correlation
coefficient:
Sales (Units) Discounts (%)
20 1
40 4
50 6
55 6
60 10
70 12
80 13
90 14
100 15
The correlation coefficient of sales and discount are given below:
Particular Sales (Units) Discounts (%)
Sales (Units) 1 0.97
Discounts (%) 0.97 1
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Formula:
As per the Formula R2 = 0.97
On the basis of above computation of correlation coefficient it can be identified that, both
sales units and discount rates are highly correlated to each other. It clearly indicates that, if the
units of sales increases, percentage of discount also increases and units of sales decreases than
the percentage of discount also decreases (Pettigrew, 2014).
TASK 3
3.1 & 4.1 Produce line graph
In the present study, Managing Director of a Clothing company that import cloths from
Spain Italy and France and sells them in UK. However, Director is focusing on expanding its
business operations and for that he wants to understand the sales costs and advertising cost of last
10 years so that smart and effective decisions can be made.
Line Graph:
Through the help of below presented line graph it has been evaluated can be evaluated
that, sales of the company has been increased in a significant manner as compared to the
advertising costs. However, it clearly defines that company’s products are generating higher
demand in the m market of UK and people are liking the exported apparels from different
countries of the world. Further, it is showing better outcomes in order to expand business that
Director have to invest very low in terms of marketing or promoting its products and due to high
popularity amount people of UK, Company will attain higher revenues.
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2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5
0
1000
2000
3000
4000
5000
6000
7000
Line Graph
Advertising Cost £'000s Sales £'000s
Pie chart
In the presented pie chart net income generated by the Clothing Company by its 5
different branches in UK can be evaluated. However, through this chart it has been analyzed that,
branch in London is generating the highest amount of net income. In this regard, people of
London are highly attracted towards the offering of the company as compared to the other
branches of the company. Other than this, Manchester is the branch in terms of net income is at
second in 2015. While the other remaining branches are showing similar results and outcomes.
240
180
160
140
130
Net Income Generated by 5 Branches
of the company in 2015
London
Manchester
Edinburgh
Cardiff
Liverpool
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Bar charts
London Manchester Edinburgh Cardiff Liverpool
0
50
100
150
200
250
240
180 160 140 130
Net Income Generated by 5
Branches of the com pany in
2015
Advertising Costs and Sales Data of 2002 – 2015:
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
200 240 300 340 400 480 520 760 880 920 980 1020 1100 11701200 1400 1500 1800
2200 2300 2600 2800 2900 3100
3450 3600
4100
4670
Advertising and Sales data 2002-2015
Advertising Cost £'000s Sales £'000s
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Scatter Plot on Advertising and Sales Costs
0 200 400 600 800 1000 1200 1400
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
Advertising and Sales data 2002-2015
3.2 & 4.1 Trend lines
Trend lines of Advertising costs:
Trends line of Advertising costs are showing increasing results because, with changing
trends and tools, it is essential for the firm to use latest marketing tools and techniques so that
they can market and promote products and services in appropriate manner. Furthermore, it is
mostly because of the use of digital market tools. High percentage of population of UK is
associated to the social networking site thus, in order to target large number of audience it is
important for the company to invest money in social media advertising so that they can influence
audience in appropriate manner.
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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
0
200
400
600
800
1000
1200
1400 f(x) = 197.035373272055 exp( 0.141751876255229 x )
R² = 0.958414260153368
Advertising Cost £'000s
Trend Line of Sales:
Operating in such a competitive market, sales performance of the company is showing
promising outcomes. However, constantly increasing sales indicates that products offered by the
cited firm have relatively high demand in the market.
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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
f(x) = 1198.88327524441 exp( 0.0975870724629485 x )
R² = 0.975259927654925
Sales £'000s
3.3 Covered in power point presentation
3.4 Formal Business Report
To,
The Board of Directors of Clothing Company
Date: 7th December 2015
Subject: Report of sales performance of the company
INTRODUCTION
In the present study, the managing director of a company that sells clothes imported
from Spain, Italy and France in the UK is focusing on analyzing the sales performance of its 5
different branches. However, data for last 10 years has been evaluated and on the basis of it
graphical presentation has been made.
METHODOLOGY
In order to carry out present study in effective and reliable manner, graphical
presentation approach has been selected. However, the main purpose of this approach is that it
helps in presenting the gathered information in suitable and reliable manner (Messick, and
Bazerman, 2013). Furthermore, through the help of graphical presentation, researcher is able
to present the trend lines of advertising costs and sales costs for future five years.
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FINDINGS
Through the help of above graphical presentation it has been identified that, sales
performance of the clothing company is constantly improving and it is because of the high
demand of imported cloths from different countries. However, through the help of pie chart it
has been evaluated that, branch in London is generating the highest amount of net income. In
this regard, people of London are highly attracted towards the offering of the company as
compared to the other branches of the company. Other than this, Manchester is the branch in
terms of net income is at second in 2015. While the other remaining branches are showing
similar results and outcomes. Furthermore, tends lines assist in evaluating that, despite of
increasing costs of advertising, clothing company is able to generate higher revenues. The
main reason behind is the constantly increasing demand in popular areas like London and
Manchester. Along with this, Branch of Liverpool and Cardiff are slowly by steadily are
increasing their level of net income which is highly motivating for the Managing Director.
CONCLUSION
In conclusion to the report it has been observed that, top level management of Clothing
Company is making valiant efforts in order to generate higher sales (Beach, 2014). However,
company is using latest tools and techniques for promoting its products and services is helping
their course and generating greater business volume.
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TASK 4
4.2 Prepare a network diagram for activities using Microsoft Project
ii) Calculate Project Duration
Critical Path: 1+2+4+5+6+7+11+12
Critical Path duration: 4+3+10+4+6+9+12+20 = 72 days
iii) Clearly mark the Critical Path
Task Name Duration Start Finish Predecessors
Physical preparation 4 days Mon 12/7/15 Thu 12/10/15 -
Organisational planning 3 days Fri 12/11/15 Tue 12/15/15 A
Personal selection 15 days Fri 12/11/15 Thu 12/31/15 A
Equipment installation 10 days Wed 12/16/15 Tue 12/29/15 B
Personnel training 4 days Wed 12/30/15 Mon 1/4/16 D
Detailed system designing 6 days Tue 1/5/16 Tue 1/12/16 E
File conversion 9 days Wed 1/13/16 Mon 1/25/16 F
Establishment of standards 2 days Fri 1/1/16 Mon 1/4/16 C
Program preparation 10 days Wed 12/16/15 Tue 12/29/15 B
Program testing 9 days Wed 12/30/15 Mon 1/11/16 D
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Finishing Documentation 12 days Tue 1/26/16 Wed 2/10/16 G, H, I, J
Follow Up 20 days Thu 2/11/16 Wed 3/9/16 K
iv) Prepare a Gantt chart and state the benefits of using it as a Project Management Tool
Benefits of Project management tools:
There are several benefits of using project management tool. However, it is the duty of
manager to make sure that he/she uses these tools in appropriate and suitable manner.
 Collaborate on projects
 Delegate tasks effectively
 Stay on Schedule
 Track projects
 Ensure quality management (Carpintero and Petersen, 2014)
 Enhances the reliability and feasibility of the project
TASK 4 B
4.3 Calculation of Net present value and Internal rate of return
In general, investment appraisal techniques refers to the process of evaluating and
analyzing the reliability and validity of the investment proposals. However, these techniques are
the most common approach used by the managers to make smart and effective decisions
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regarding future contingency (Pettigrew, 2014). There are various types of tools and techniques
of investment appraisal such as: net present value, payback period, internal rate of return and
average rate of return. According to the present given scenario, Net present value and internal
rate of return has been computed in order to help management of the company to select reliable
and suitable project from the available proposals.
Net present value:
This is the most often used approach in order to analyze and select the best possible
proposal available to the management of an organization for the future investment. Under this
technique all the cash inflows associated with the project are discounted at a defined rate of PV
factor (Söderholm and Norrbin, 2013). Furthermore, NPV is highly reliable because it considers
time value for money. However, higher the value of net present value better it is for the future
investment. NPV for the present given scenario:
Initial Investment: £200000 in both the Projects
Project A @ 10%:
Project A
Year Cash flows PV factor @10% Amount
1 55000 0.909 49995
2 67000 0.826 55342
3 72000 0.751 54072
4 80000 0.683 54640
5 90000 0.621 55890
Total 269939
Less: Initial Investment 200000
NPV 69939
Project A @ 30%:
Project A
Year Cash flows PV factor @30% Amount
1 55000 0.77 42350
2 67000 0.59 39530
3 72000 0.46 33120
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4 80000 0.35 28000
5 90000 0.27 24300
Total 167300
Less: Initial Investment 200000
NPV -32700
Project B @ 10%:
Project B
Year Cash flows PV factor @10% Amount
1 42000 0.909 38178
2 75000 0.826 61950
3 82000 0.751 61582
4 63000 0.683 43029
5 35000 0.621 21735
Total 226474
Less: Initial Investment 200000
NPV 26474
Project B @ 30%:
Project B
Year Cash flows PV factor @30% Amount
1 42000 0.77 32340
2 75000 0.59 44250
3 82000 0.46 37720
4 63000 0.35 22050
5 35000 0.27 9450
Total 145810
Less: Initial Investment 200000
NPV -54190
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Internal Rate of Return:
Internal rate of return is also feasible method for evaluating the feasibility of an
investment project. However, this method also undertakes time value for money. The main
purpose of this technique is to compute the overall effective compound rate of return of the
project (Ferrell and Fraedrich, 2014). Furthermore, through the means of IRR, manager can
easily evaluate the potential profit that the investment project is going to generate in future in
terms of percentage. Internal rate of return for the present given scenario is:
Internal rate of return = lower discount rate + NPV at lower discount rate/ NPV at lower rate -
NPV at higher rate* (Higher discount rate – discount rate)
Project A = 0.10+69939/ (69939-(-32700))*(0.30-0.10)
= 23.63%
Project B = 0.10 + 26474/ (26474-(-54190) * (0.30-0.10)
= 16.56%
Recommendation
On the basis of above computation it has been evaluated that, net present value at 10%
discount factor, Project A generate higher NPV of £69939 as compared to the project B which
generates £26474. Thus, on the basis of 10% discount factor it can be recommended that
management of the firm should invest in Project A. On the other hand, net present value at 30%
discounting factor illustrate that Project A is generating positive NPV of -32700 as compared to
the negative NPV of Project B -54190. While internal rate of return of project A is higher than
the project B. Henceforth, on the basis of both the techniques it has been identified that, Project
A is feasible for the company to invest in as it will help in generating higher results as compared
to the other proposals.
CONCLUSION
In summing up the report it has been observed that, decision making is one of the most
crucial aspect for the managerial level people and it is the their responsibility to evaluate each
aspect so that they can make effective and smart decisions. Furthermore, through the help of
descriptive analysis suitable decision has been made regarding sales approach of clothing
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