Capital Budgeting Analysis for Fresh Fruit Juice Drink Product

The project of fresh fruit juice drink by XYZ will take 175 days to accomplish, as shown in the network diagram. To assess the viability of the project, ABC can use various financial or capital budgeting tools such as payback period, net present value, and internal rate of return method. The calculation shows that the net present value of the project is positive, indicating a feasible and reliable financial outcome.

Business Decision Making

Table of Contents
INTRODUCTION ..........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Planning for the collection of primary and secondary data...................................................1
1.2 Presenting the survey methodology and sampling frame used for the research purpose......2
1.3 Designing of questionnaire...................................................................................................3
TASK 2............................................................................................................................................4
2.1 Summarization of secondary data which aid in the decision making...................................4
2.2 Analysis of the result ............................................................................................................5
2.3 Analysis of data by using measures of dispersion................................................................7
2.4 Use of quartile, quantile and correlation coefficient for the decision making in relation to
the the fresh juice drink market...................................................................................................8
TASK 3............................................................................................................................................9
3.1 Producing graph by using spreadsheet to draw the valid conclusion....................................9
3.2 Creation of the trend line to forecast the business trend.....................................................11
3.3 Business presentation for the effective dissemination of information................................11
3.4 Producing of formal business report...................................................................................12
TASK 4..........................................................................................................................................12
4.1 Using suitable information processing tools.......................................................................12
4.2 Preparing a project plan and determining the critical path ................................................13
4.3 Use of financial tools in the decision making aspects.........................................................15
CONCLUSION..............................................................................................................................16
REFERENCES..............................................................................................................................17

INTRODUCTION
Looking at the present business environment it has become important for the senior
authority to make smart and effective judgment so that operations can be executed in the best
possible manner and generates desired results and outcomes (How to Make Effective Business
Decisions, 2015). Thus, making optimum utilization of available tools and techniques as well as
assessing the conditions of market always assist in making reliable decisions (Ferrell and
Fraedrich, 2014). The present report is based upon ABC Company which is the fresh juice
manufacturer and retailer in London. Through the means of different statistical tools and
graphical presentation assist in providing better understanding to managers so that they can make
the best possible judgment. Besides this, it states secondary research to identify the size and
potential of market. Further, it develops an understanding regarding the measures of dispersion
which helps in analyzing the large amount of data. It also states the use of information
processing tools and financial tools in the decision making aspects.
TASK 1
1.1
For carrying out the research it is important for the investigator to collect wide range of
data or information so that in-depth analysis can be made. Herein, report focuses on gathering
data related to the demand of fresh juice in the market and for which researcher undertakes
primary and secondary data collection methods. The main purpose behind using both these
methods is that it helps in developing suitable base for the investigator form which smart
conclusion or recommendations can be made. Both primary and secondary data helps the
researcher is assessing the market potentials for the new juice drink product.
Plan for the primary data collection: Primary data is collected by the researcher for the
first time to specifically fulfill the purpose of research. There are various sources of primary data
collection such as survey, observation etc. which researcher can use to meet their research
purpose. For the collection of primary data, researcher will focus on undertaking survey
methodology to collect wide range of valuable and realistic data regarding the same. Survey is
the best technique which provides assistance to the researcher in assessing consumer preference
and attitude towards the new juice drink (Zsambok and Klein, 2014). Researcher prepares the
questionnaire which contains questions regarding the customer’s attitude and buying behavior in
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relation to the fresh juice product. In order to carry out the survey in an effective manner,
researcher requires selecting the sample size among population upon which the research is
conducted. Once the sample size is framed thereafter, researcher prepares the questionnaire
which contains both close and open ended questions. These questions assist the researcher in
identifying consumer preference towards the fresh juice product.
Plan for the secondary data collection: Secondary data can be defined as the information
which is already gathered by some other authorities for their research. Researcher can also use
the secondary data which is highly related to their research topic. Further, different methods will
be employed in secondary research to gather wide range of data to develop suitable theoretical
base. Library is one of the best sources which provides huge amount of data to the researcher
which helps them in conducting their research study effectively. Besides this, journals and
research papers also help the researcher in finding out the solution of problem (García-Peñalvo
and Conde, 2014). Further, government also published periodical data in relation to the market
trends, consumer income, preference and buying pattern. It is also one of the effective reliable
sources of secondary data.
1.2
Survey methodology states the steps according to which researcher needs to find the
solution of problem. It prevents confusion in the mind of researcher and facilitates quick and
accurate solution of the problem. To identify the attitude, preference and buying behavior of
potential customers of ABC towards fresh juice drink product, researcher conducts survey. In
order to conduct the survey, researcher will get the e-mail id of customers. Thereafter, researcher
sends the questionnaire on the e-mail id of potential customers (Meyer and Kiymaz, 2015). It
helps the researcher in assessing the needs, wants and expectations of customers towards the
product that is introduced by ABC.
Sample is the small part of population which researcher needs to determine by taking into
consideration various sampling techniques. Moreover, it is not possible for the researcher to
conduct survey upon all potential customers of ABC. Thus, researcher needs to select the sample
from the population to derive reliable results (Anderson and et.al, 2015). However, success of a
research is highly based upon the selected sample size from researcher aims to gather wide range
of information. Sample size should not be too large or too small. Sample size should be in such a
form which helps the researcher in getting accurate results of the problem. In this, researcher
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undertakes purposive sampling method to find out the suitable sample upon which the research
will be conducted. Researcher selects 50 people for the survey which will help him in getting
appropriate information regarding the attitude of customers towards new juice product.
1.3
Demographic information of customers
 Name ( )
 Age ( )
 Income ( )
1. Which kind of drinks does you like the most?
 Cola based drinks ( )
 Fruit based drinks ( )
2. How often you intake fresh juice drinks?
 Daily ( )
 Once in a week ( )
 Twice in a week ( )
3. Which element first comes in your mind first when you make decision to purchase the fresh
juice drink?
 Price ( )
 Quality ( )
4. Are you satisfied with the services which are offered by the retail store?
 Dissatisfied ( )
 satisfied ( )
 Moderately satisfied ( )
 Highly satisfied ( )
5. How much money you prefer to spend on the fresh juice product?
 <15£ ( )
 20£ ( )
 25£ ( )
6. Which flavor of fruit juice do you like more?
7. Which brand of fruit juice do you purchase more consistently or frequently?
8. According to you, which ingredient will improve the quality of fruit juice?
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TASK 2
2.1
Summarization of the profit and sales data of ABC are as follows:
Year Sales Profit
2005 1100 120
2006 1175 145
2007 1250 160
2008 1300 180
2009 1330 195
2010 1400 210
2011 1500 225
2012 1570 240
2013 1670 255
2014 1750 270
Descriptive analysis of sales:
Sales
Mean 1404.5
Standard error 66.67
Median 1365
Researcher makes use of descriptive statistics to analyze the secondary data which aid in
the decision making aspect of an organization. Above mentioned table shows that average or
mean sales of ABC are 1404.5. In contrary to this, sales of ABC which they generated in the
middle of the ten years are 1365. On the basis of this aspect, it has been assessed that there is the
difference between the average and middle sales of an organization. Thus, ABC needs to frame
competent strategies and policies to maximize their sales and profit.
Descriptive analysis of profit:
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Profit
Mean 200
Standard error 15.53
Median 202.5
Descriptive analysis of profit represents that average profit which organization have
earned during the ten years are 200. On other hand; revenue which ABC have generated in the
middle of the ten years is 202.5. Average and median profit of ABC is very close which
represents that company have adopted the similar strategies and policies in every year.
2.2
Analysis of the results of the primary data is as follows:
Which kind of drink does you like most?
Responses No. of respondents % of respondents
Cola based drinks 20 40
Fruit based drinks 30 60
Total 50 100
On the basis of the above mentioned figures it has been stated that 60% customers prefers
fruit drinks where as 40% prefers cola based drinks. Thus, market for the fruit based drinks
entails opportunity in front of ABC to increase their productivity and profitability aspects.
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Which element attracts come in your mind first when you purchase the fresh juice drink?
Responses No. of respondents % of respondents
Price 15 30
Quality 35 70
Total 50 100
As per the above table it has been assessed that 70% people gives more priority to the
quality feature of the juice product as compared to the prices charged for them. In contrary to
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Cola based drinks Fruit based drinks Total
0
20
40
60
80
100
120
% of respondents
Price Quality Total
0
20
40
60
80
100
120
% of respondents

this, rest 30% people places more emphasis upon the price while making decision regarding the
purchasing of product.
Do you satisfied with the services of the retail store?
Responses No. of respondents % of respondents
Dissatisfied 4 8
Satisfied 8 16
Moderately satisfied 13 26
Highly satisfied 25 50
Total 50 100
Above mentioned table clearly states that 50% people are highly satisfied with the
services of ABC. It represents the loyalty of the customers towards the products and services
offered by an organization. Only 8% people are dissatisfied with the services of ABC. On other
hand, 26% people are moderately satisfied with the services delivered by an organization. On the
basis of this aspect, satisfaction level of the customer is high which proves to be more fruitful for
an organization (Serreze and Stroeve, 2015).
2.3
Measure of dispersion is a statistical tool which helps ABC in assessing the extent to
which sales and profit is squeezed. It enables organization to make effective decisions and
policies which assist it in reducing the various occurs in the performance (Götze, Northcott and
7
Dissatisfied SatisfiedModerately satisfiedHighly satisfied Total
0
20
40
60
80
100
120
% of respondents

Schuster, 2015). Through this, company is able to build and sustain competitive advantage over
others.
Calculation of dispersion of sales of ABC:
Standard Deviation 213.99
Sample Variance 45791.39
Range 650
Minimum 1100
Maximum 1750
Above table shows that sales of ABC will deviate up to 213.99 in relation to the other
factors. By assessing the level of deviation which will occur in the sales company is able to
frame cost effective policies. Through this, ABC is able to coping up with the challenge which
will arise in the near future. Besides this, range of the sales pattern is 650. It states that sales of
the company will increase up to the limit of 1750 and decrease up to the extent of 1100 in the
near future. As per this aspect organization cam make effective decisions which makes
contribution in the organizational success.
Calculation of dispersion of Profit of ABC:
Standard Deviation 49.1
Sample Variance 2411.11
Range 150
Minimum 120
Maximum 270
From the above illustrated figures it has been evaluated that deviation in the profit is
49.1. It represents the percentage up to which the deviation will occur in the profit in regards to
the investment made by ABC. The profit range of ABC is 150 which shows that profit an
organization will rise up to 270 and will decline up to the limit of 120.
2.4
Quartile: Quartile is the statistical tool which assists company in assessing the sales
generated by an organization in each quarter of the year (Kerler III, Fleming and Allport, 2014).
It divides the whole year in the four quarters which helps in indenting the sales pattern of ABC.
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Calculation of quartile of sales:
Quartile 1 1262.5
Quartile 2 1365
Quartile 3 1552.5
On the basis of above quartile computation it can be analyzed that, sales performance of
ABC Ltd is increasing constantly which indeed highlights that the offered products and services
of cited are satisfying the expectations and needs of the customers. It also indicates the strategies
adopted by an organization are sound. It entails opportunity in front of ABC to capture the high
market share by introducing the fresh fruit juice in the market.
Percentile: There is no big difference in quartile and percentile. The only difference is
that percentile shows the sales pattern in the form of percentage (Champathed and Chansa-
ngavej, 2015).
Calculation of percentile of sales:
25th Percentile 1262.5
50th Percentile 1365
75th Percentile 1552.5
Correlation coefficient: It is a statistical measure which represents the interrelationship
between the two variables. It states the degree to which changes to the one variable assist in
predicting changes in another variable (correlation coefficient, 2015).
Calculation of correlation coefficient between sales and profit:
Correlation Coefficient
Sales Profit
Sales 1
Profit 0.99 1
The above results show high degree of positive co-relationship between the sales and
profit aspect. It indicates that as sales increases profitability of ABC also increases. Where as if
sales of an organization then profitability of ABC is also decreases. It has been that sales and
profit of the company will increase or decrease in the same direction.
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TASK 3
3.1
Year Sales Profit
2005 1100 120
2006 1175 145
2007 1250 160
2008 1300 180
2009 1330 195
2010 1400 210
2011 1500 225
2012 1570 240
2013 1670 255
2014 1750 270
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Graphical presentation shows data in tabular format which facilitates deeper
understanding regarding the huge amount of data. Sales and profitability aspects of an
organization are showing growing trend. It indicates the policies and strategies adopted by an
organization is sound as well as customers are loyal towards the products and services offered by
ABC.
3.2
Trend line: It is the technical analysis which represents the curved or straight line. It assist
ABC in forecasting the trend or pattern of sales and profit in the near future. Through this,
organization can easily asses that sales and revenue of an organization will rise or decline in the
upcoming years (Nicholson and Aman, 2012). It enables organization to frame policies to build
strategic position in the target market mind as compared to their rivals.
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The above trend line represents that sales and profit revenue of ABC will rise in the near
future. Thus, if company will invest in the fresh juice product then it proves to be more profitable
for an organization. In addition to this, it also makes contribution in building the sound financial
position of ABC.
3.3 Business presentation for the effective dissemination of information
Enclosed in power point presentation.
3.4
To,
The Director, ABC ltd. retailer
From: Opera consultant
Status: Confidential
Date: 21-November-2015
1. Introduction: Top level management of ABC LTD planning to open new venture of
Fresh Juice Product thus, need to understand actual market scenario so that smart and
effective decisions be made regarding the launch of new venture.
2. Methods: Various Methods has been employed by the senior authority to gather wide
range of valuable information such as primary and secondary sources of data collection
are undertaken by the researcher. In order to collect primary data researcher conducts
survey with the help close and open ended questions. Besides this, books, journals and
research papers are also used by the researcher to collect the secondary data.
3. Findings: From this project, it is found that customer prefers fruit based drink rather cola
based drinks. Further, it also determined that customers are highly satisfied with the
services provided by ABC. Thus, new project in relation to the fresh fruit juice provide
more financial benefits to an organization.
4. Conclusion: It can be inferred that sales and profit aspect of an organization will rise in
the near future which makes contribution in the organizational success. Besides this, it
can be concluded that net preset vale of the project is positive. Thus, fresh juice drink
product proves to be more beneficial for ABC and there helps company in build
competitive position over others.
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TASK 4
4.1
Varied information processing tools which ABC can use in simplifies the large amount of
data to facilitate better understanding. Information processing tools comprises MIS, accounting
information and decision support system (Ravindra and Rao, 2014). By taking into consideration
these tools ABC can quickly make effective decisions which prove to be more profitable for an
organization. Management information system is a computerized database which helps
organization in producing the report in an effective manner. Besides this, it also helps in
assessing the deficiencies which occurs in the performance of management. Further, information
processing system simplifies the large amount of data which are collected by the researcher
(Sapsford and Jupp, 2006). Through this, organization can easily assess the market growth size
and trend in relation to the fresh juice drink product.
4.2 Preparing a project plan and determining the critical path
Critical path method can be defined as a tool which provides deeper insight to ABC about
the activities which they needs to give more priority for the timely accomplishment of the project
(Sharma, 2012).
Activity
Number
Activity
Name
Activity Duration
(Days)
Immediate
predecessors
1 A Conducting research in relation
to the customer preferences and
attitude towards the fruit juice
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2 B Data collection planning 8 1
3 C Collection of primary data 15 2
4 D Collection of secondary data 10 2
5 E Analysis of data 18 3,4
6 F Forecasting of budget 6 2,5
7 G Planning in relation introducing
the fresh juice drink in the market
10 6,5
8 H Resource planning 7 6,7,5
9 I Allocation of resources 9 8
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10 J project implementation 15 7
11 K Introducing the fresh juice drink
in the market
35 7,10
12 L Performance review 22 7,11
13 M Management of change 8 10,12
14 N Executing the plan 16 13
15 O Closure of the project 8 14
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201 days
Above mentioned network diagram shows that XYZ will take 175 days in order to
accomplish the project of fresh fruit juice drink.
Critical path= A+B+C+E+F+G+J+K+L+M+N+O
= 14+8+15+18+6+10+15+35+22+8+16+8= 175 days
4.3
There are various financial or capital budgeting tools which ABC can use to assess the
viability of the project. Capital budgeting tools such as payback period, net present value and
internal rate of return method helps organization in selection of the best project which gives
positive return to the company (Shultz, 2005).
Payback period: It is the capital budgeting tool which provides deeper insight to an
organization about the period in which it is able to recover its initial expenses (Xue and et.al.
2014).
Calculation of payback period
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Years Net cash flow (£000) Cumulative cash flow
1 120 120
2 150 270
3 175 445
4 190 635
5 210 845
Payback period = 3 + 55/190
= 3 +.29
= 3.29years
If ABC invests £500 in the fresh fruit juice drink product then it takes 3 years and 3
months to recover initial investment made by an organization.
Net present value: For instance: If ABC invest 500 in the fresh fruit juice drink then net
present value of the project on the basis of 10% discounting rate are as follows:
Calculation of the net present value
PROJECT
Years Net cash flow (£000) Present value @ 10%
Discounted net cash
flow (£000)
1 120
0.909
109.28
2 150
0.826
123.9
3 175
0.751
131.43
4 190
.683
19.77
5 210 0.62 130.41
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Total discounted cash flow 624.59
Initial investment 500
Net present value 124.59
On the basis of the above calculation it has been interpreted that net present value of the
project is positive. Thus, fresh juice drink product gives positive return to the company so they
should invest in this project.
CONCLUSION
By summing up this project it has been concluded that customer gives more priority to
quality aspect of the product in comparison to the price factor. Along with this, it has been
evaluated that people are acquiring high quality services from the offered products and services
of ABC Ltd. Furthermore, graphical presentation clearly states that, firm will generate higher
sales and profits in near future as constantly provide better products and services. Besides this,
net present value of the project is also positive. Therefore, it can said that opening a new fresh
juice manufacturing firm will provide feasible and reliable financial outcomes in near future.
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