Business Finance

This report analyses investment proposals of K plc and suggests alternative methods of funding for an unlisted company. It includes calculation of payback period and net present value, ranking of projects, and qualitative factors for decision making.

Business Finance

Contents
INTRODUCTION...........................................................................................................................................3
PART A.........................................................................................................................................................3
Analyse the investment proposals...........................................................................................................3
c) Rank the projects on the basis of Pay back as well as Net present value...........................................12
d) Select the project when all the offers are mutually exclusive...........................................................13
e) Explain the strength and weaknesses of payback period and net present value method................13
f) Discuss about the qualitative factors which will help the directors in making a final payment.........13
PART B.......................................................................................................................................................14
a) Suggest 3 alternative methods of funding.......................................................................................14
b) Create a link between the financing and investment decision in relation to acquisition of unlisted
company................................................................................................................................................15
PART C.......................................................................................................................................................15
a) Prepare a full variance analysis statement of variable cost elements...............................................15
b) Suggest the possible explanations for variances identified...............................................................17
PART D.......................................................................................................................................................18
Compare the centralised and decentralised procurement along with discussing about their benefits.
...............................................................................................................................................................18
CONCLUSION.............................................................................................................................................19
REFERENCES..............................................................................................................................................20

INTRODUCTION
A business report is a compilation of facts on a company's operations. This analysis is being
created in order to determine the best strategy for the organisation. It contains an evaluation of
two initiatives and spending, and even an examination of the actual results. The firm selected for
the study is K plc. It is a commercial entity (Jackson and et.al., 2020). The study is divided into
four components. Its first section evaluates the various references to a procedure and gives a
recommendation for the best performance. The second section tells the organisation about the
many financial apps available to it and the best one to utilize for purchasing. The third evaluates
the firm's success by comparing predicted statistics to published results. The fourth section
examines and analyzes the advantages of decentralized vs centralized purchasing.
PART A
Analyse the investment proposals.
a) Calculation of Pay Back Period.
Project A
Year £000
Annual cash inflow Cumulative cash flow
0 -1000000
1 300000 -700000
2 300000 -400000
3 300000 -100000
4 300000 200000
5 300000 500000
6 300000 800000
Pay back period of Project A = 3 + 100000 / 300000

= 3 + 0.33
= 3.33 years
Project B
Year £000
Annual cash inflow Cumulative cash flow
0 -400000
1 100000 -300000
2 100000 -200000
3 100000 -100000
4 100000 0
Pay back period of Project B = 4 years
Project C
Year £000
Annual cash inflow Cumulative cash flow
0 -700000
1 200000 -500000
2 200000 -300000
3 200000 -100000
4 200000 100000
5 200000 300000
Pay-back period of Project C = 3 + 100000 / 200000

= 3 + 0.5
= 3.5 years
Project D
Year £000
Annual cash inflow Cumulative cash flow
0 -614500
1 100000 -514500
2 100000 -414500
3 100000 -314500
4 100000 -214500
5 100000 -114500
6 100000 -14500
7 100000 85500
8 100000 185500
9 100000 285500
10 100000 385500
Pay-back period of Project D = 6 + 14500 / 100000
= 6 + 0.145
= 6.145 years
Project E
Year £000

Annual cash inflow Cumulative cash flow
0 -500000
1 120000 -380000
2 120000 -260000
3 120000 -140000
4 120000 -20000
5 120000 100000
6 120000 220000
7 120000 340000
Pay back period of Project E = 4 + 20000 / 120000
= 4 + 0.17
= 4.17 years
Project F
Year £000
Annual cash inflow Cumulative cash flow
0 -560000
1 100000 -460000
2 100000 -360000
3 100000 -260000
4 100000 -160000
5 100000 -60000

6 100000 40000
7 100000 140000
8 100000 240000
9 100000 340000
10 100000 440000
Pay back period of Project F = 5 + 60000 / 100000
= 5 + 0.6
= 5.6 years
Project G
Year £000
Annual cash inflow Cumulative cash flow
0 -200000
1 100000 -100000
2 100000 0
3 80000 80000
4 80000 160000
5 80000 240000
6 80000 320000
Pay back period of Project G = 2 years
b) Calculation of Net Present Value of Projects.
Project A

Year £000
Annual cash inflow PV value Discounted cash flow
0
1 300000 0.909 272700
2 300000 0.826 247800
3 300000 0.751 225300
4 300000 0.683 204900
5 300000 0.621 186300
6 300000 0.564 169200
Total 1306200
Net present value of Project A = Total inflow – Total Outflow
= 1306200 – 1000000
= £ 306200
Project B
Year £000
Annual cash inflow PV value Discounted cash flow
0
1 100000 0.909 90900
2 100000 0.826 82600
3 100000 0.751 75100
4 100000 0.683 68300

Total 316900
Net present value of Project B = 316900 – 400,000
= - £ 83100
Project C
Year £000
Annual cash inflow PV value Discounted cash flow
0
1 200000 0.909 181800
2 200000 0.826 165200
3 200000 0.751 150200
4 200000 0.683 136600
5 200000 0.621 124200
Total 758000
Net present value of Project C = 758000 – 700,000
= £ 58000
Project D
Year £000
Annual cash inflow PV value Discounted cash flow
0
1 100000 0.909 90900
2 100000 0.826 82600

3 100000 0.751 75100
4 100000 0.683 68300
5 100000 0.621 62100
6 100000 0.564 56400
7 100000 0.513 51300
8 100000 0.467 46700
9 100000 0.424 42400
10 100000 0.386 38600
Total 614400
Net present value of Project D = 614400 – 614,500
= £ -100
Project E
Year £000
Annual cash inflow PV value Discounted cash flow
0
1 120000 0.909 109080
2 120000 0.826 99120
3 120000 0.751 90120
4 120000 0.683 81960
5 120000 0.621 74520
6 120000 0.564 67680

7 120000 0.51 61200
Total 583680
Net present value of Project E = 583680 – 500,000
= £ 83680
Project F
Year £000
Annual cash inflow PV value Discounted cash flow
0
1 100000 0.909 90900
2 100000 0.826 82600
3 100000 0.751 75100
4 100000 0.683 68300
5 100000 0.621 62100
6 100000 0.564 56400
7 100000 0.513 51300
8 100000 0.467 46700
9 100000 0.424 42400
10 100000 0.386 38600
Total 614400

Net present value of Project F = 614400 – 560,000
= £ 54400
Project G
Year £000
Annual cash inflow PV value Discounted cash flow
0
1 100000 0.909 90900
2 100000 0.826 82600
3 80000 0.751 60080
4 80000 0.683 54640
5 80000 0.621 49680
6 80000 0.564 45120
Total 383020
Net present value of Project G = 383020 – 200,000
= £ 183020
c) Rank the projects on the basis of Pay back as well as Net present value.
Rank Pay back period Net present value
1 G ( 2 Years) A (£ 306200)
2 A ( 3.33 Years) G (£ 183020)
3 C ( 3.5 Years) E (£ 83680 )
4 B ( 4 Years) C (£ 58000)
5 E ( 4.17 Years) F (£ 54400)
6 F ( 5.6 Years) D (£ - 100)

7 D ( 6.145 Years) B (£ - 83100)
d) Select the project when all the offers are mutually exclusive.
Predicated on above that the methodology, it is clear that K plc will be unable to undertake
Projects E, F, or D since they all demanded a project duration of more than 4 years. The money
must be recovered in no and over 4 years, according to K plc's aim. Unfortunately, many efforts
do not generate substantial revenues, with F and D generating negative growth after
accomplishment. It is proposed that project G be undertaken out of the three remaining
agreements, B, C, and G—because it looks to be more profitable to the business. It will take 6
years to fulfill both of these products. Project A has a lot more money put in it than Project G.
Especially given the fact that perhaps the income from this transaction is greater. Additionally, A
will emerge in three years and a few days, while G will not arrive for another two years (Qiu,
Fitzgerald and Mitra, 2021).
e) Explain the strength and weaknesses of payback period and net present value method.
Strength of Pay back Weakness of Pay back
It's the most basic method of stock valuation. When computing the timeframe, it eliminates
the influence of the payback period.
It simplifies the effort of comparing items
depends on the quantity reimbursed.
It should not take into account the amount
obtained after repayment.
Strength of NPV Weakness of NPV
It takes into account the effect of the payback
period on currency.
The reliability of the outcomes is determined
by the anticipated data used.
It is based on net cash flows rather than net
income.
It's useless for comparison variety of projects
dimensions (Leibovich and et.al., 2018).
f) Discuss about the qualitative factors which will help the directors in making a final payment.
K plc must consider a variety of factors before selecting a firm.

• Management excellence - K plc must decide how much guidance is required to execute the job.
Additionally, it should evaluate its own managerial abilities.
• Customer and geographical expansion - A company should determine the kind of customers it
represents, and also the volume of such customers. This data may be utilized to determine
whether or not firm will be able to promote to them (Loew and Schröder, 2021).
• Quality process was proposed: It is vital for K plc to understand whether the undertaking in
which it is participating is desired more by general public.
• Expansion appreciation K plc should properly evaluate the concept from all perspectives to
assess if someone has the capacity to rise.
• The goal and vision of the company are critical. K plc must guarantee that the items with which
they will engage do not violate the firm's principles and goals.
PART B
a) Suggest 3 alternative methods of funding
K plc has a number of financial possibilities for its promissory note of an unlicensed
corporation. Those are all discussed in the order listed below:
• Bank loan - This is the simplest approach for K plc to meet its finance requirements. It is the
acquisition of the wanted from a lending at a term deposit, which should be reimbursed by the
debtor at specified intervals. This will let the corporation avoid increasing its expenditure and
may be repaid with earnings created by the purchased organisation.
• Government grants - The Company routinely provides assets to businesses in ways that
strengthen. These are granted from them in efforts to support the state's economy. K plc can
enjoy the benefits of it so identical contracts are frequently issued for free or at exceptionally
cheap interest rates (Kasyanova, Streletskaya and Kiseleva, 2019).
• Business Investors - These are large organizations that will lend money to these people in
exchange for a share of the preferred equity. It is also a fantastic choice since the financiers are
not looking for returns on investment, but more a piece of the income depending on their

ownership. There is no requirement to refund the funds. Business angels are the best option for
fundraising.
b) Create a link between the financing and investment decision in relation to acquisition of
unlisted company.
K plc's willingness to bring over an unregistered business necessitates the acquisition of
particular money, which it cannot obtain via its own means. To organize its finance, the
corporation might use any of the following ways. The most major benefit of such suppliers is
that firms may use them to manage their money without being dependent on the performance of
the merger or acquisition. Every one of the solutions will increase the capital cost in the event of
a fee (Miyatani Osaki and Fujiwara, 2018).
PART C
a) Prepare a full variance analysis statement of variable cost elements.
Particular Standard
Price (per
unit)
Standard
quantity
Standard
cost
Standard
cost *
quantity
Actual
price
Actual
Quantity
Actual cost
Direct
Material- S
£ 3 10000 £ 3 £ 30000 £ 3.5 8500 £ 29750
Direct
Material - T
£ 1 20000 £ 2 £ 20000 £ 1 18000 £ 18000
Direct
Labour
£ 10 3 hours *
10,000
£ 30 £ 300000 £ 10.5 28000 £ 294000
Variable
Overheads
£ 6 3 hours *
10,000
£ 18 £ 54000 £ 18.3 9000 £ 165000
Calculation of different variances
Material variances:

 Material Cost Variance = Standard cost – Actual cost
For Direct material – S = 30000 - 29750
= 30000 – 29750
= £ 250
For direct material – T = 20000 - 18000
= £ 2000
Total Material cost variance = 2250 (Favourable)
 Material price variance = ( Standard Price – Actual Price ) * Actual Quantity
For Direct material – S= ( 3 – 3.5 ) *8500
= ( 0.5 ) * 8500
= ( 4250 )
For direct material- T = ( 1 – 1) * 18000
= 0 * 18000
= 0
Total material price variance = 4250 ( Unfavourable )
 Material Usage variance = ( Standard quantity – Actual quantity ) * Standard price
For Direct material- S = (10000 – 8500) * 3
= 1500 * 3
= £ 4500
For direct material- T = (20000 – 18000) * 1
= £ 2000
Total Material Usage variance = 6500 ( Favourable )
Labour variances:
 Labour cost variance = Standard labour cost – Actual labour cost
=10 – 10.5
= 0.5

 Labour rate variance = ( Standard rate – Actual rate ) * Actual hour
= ( 300000 – 294000 ) * 28000
= 6000 * 28000
=168000000
 Labour efficiency variance = ( Standard hours – Actual Hours ) * standard rate
= ( 30000 – 28000 ) * 10
= 2000 * 10
= 20,000
Variable overhead variance = Standard variable overhead – Actual variable overhead
= 180000 – 165000
= 15000
b) Suggest the possible explanations for variances identified.
Variations help to assess the variations among observed and expected. It aids them in
identifying what steps to take to fix the differences. The cost of resources fluctuation for the firm
is beneficial for both forms of information, suggesting that it is managing items at lower expense
than projected and demonstrating competence. The differential between the costs for S, on the
other hand, is negatives, meaning that K plc is investing more than the others. However, it is
producing outstanding use of its supplies and providing courteous customer support, showing
that the firm is utilizing less technology than planned (Noor and et.al., 2018).
K plc's workforce pays a higher cost in comparison to its strategy, however the
corporation makes really good use of employees. Its modes of vibration is increasing, and it
consumes less effort to perform activities. Variable cost fluctuation is also advantageous to the
business. This shows that they waste a lot of money on the activities. In overall, K plc is carrying
out its plan successfully. They are now arranging their belongings at a huge markup, although
this might be owing to the belief that they are still in the early phases of production.

PART D
Compare the centralised and decentralised procurement along with discussing about their
benefits.
Centralised procurement Decentralised procurement
Only the top management the ability to approve
purchasing choices in this approach.
Individuals are granted power at various
levels.
Persons are discouraged since they are
constantly watched upon by others of higher
status.
Staff felt relaxed since everybody has the
capacity for greatness.
While purchasing a firm, there are hardly any
arguments since control is consolidated in one
person.
There is a significant possibility of dispute
because everyone has a different level of
information and assessment, which may result
in conflicting results.
Advantages of centralised and decentralised procurement
Organizations who use most of these tactics, based on their effectiveness, market their goods
more properly. It will help them organize greater things because the democratizing process will
enable them to examine things more thoroughly. The centralized choice, but at the other extreme,
will aid in selecting the best strategy while avoiding any debate. This allows them to select the
most price product.
Centralized procurement
• Purchasers with specific experience and skill may concentrate on a specific subject.
• Enhance onboard storage configuration.
• High-tech abilities are brought when using (Quagliarini, Maracchini and Clementi, 2017).
• A solid policy should be developed, which may culminate in more favourable purchasing
circumstances, including a larger trade discount, simpler mortgage repayments, and etc.

• Quality assurance uniformity simplifies everything.
• Only a small sum of money is required.
• Absolute control over resource consumption, and also.
• Additionally, since unsafe purchases by a variety of people are prevented, absolute control over
purchasing is possible. Putting all purchase transaction records in one place also helps with
administration.
Decentralized purchase
• Each department can get resources on a local basis as necessary.
• Availability of resources within an appropriate timescale.
• Materials are obviously bought in the appropriate amount and range for every occasion.
• There is no requirement for a substantial upfront outlay.
• Personal transport is less costly.
• Interoperability is less probable.
• Purchase orders may be filled out fast and effectively.
• Repairing old equipment takes less than a minute.
CONCLUSION
According to the preceding report, corporations must create a report in analyzing the present
situation of their numerous channels. Companies use a range of methods to evaluate the
feasibility of initiatives and active markets. It tells its consumers about the metrics used to assess
whether a firm performs its duties. Terms of work information on the results of their operation in
reference to the plan they devised by analyzing numerous variations. It may also be used to
figure out what's causing the disparities or what can be done to fix them.

REFERENCES
Books and Journals
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patient outcomes after trauma: A systematic review. Trauma. p.14604086211034008.
Leibovich, B. C. And et.al., 2018. Predicting oncologic outcomes in renal cell carcinoma after
surgery. European urology. 73(5). pp.772-780.
Loew, E. and Schröder, M. E., 2021. Disclosure Quality on Covid-19 of European Banks in
Half-Year and Year-End Financial Statements 2020.
Kasyanova, A. V., Streletskaya, M. V. and Kiseleva, D. V., 2019, December. A method for
87Sr/86Sr isotope ratio determination in biogenic apatite by MC-ICP-MS using the SSB
technique. In AIP Conference Proceedings (Vol. 2174, No. 1, p. 020028). AIP
Publishing LLC.
Miyatani, K., Y., Osaki, T., K. and Fujiwara, Y., 2018. Combined analysis of the pre-and
postoperative neutrophil–lymphocyte ratio predicts the outcomes of patients with gastric
cancer. Surgery today. 48(3). pp.300-307.
Noor, S. and et.al., 2018. Energy Demand Side Management within micro-grid networks
enhanced by blockchain. Applied energy, 228, pp.1385-1398.
Quagliarini, E., Maracchini, G. and Clementi, F., 2017. Uses and limits of the Equivalent Frame
Model on existing unreinforced masonry buildings for assessing their seismic risk: A
review. Journal of Building Engineering. 10. pp.166-182.