Business Finance: Investment Appraisal, Non-Financial Factors, and Pricing Policies

BUSINESS FINANCE

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK...............................................................................................................................................3
A) Investment Appraisal Analysis for the Project 1:..................................................................3
(I) Calculation of Payback Period: .............................................................................................3
(ii) Calculation of NPV:..............................................................................................................4
(iii) Internal Rate of Return:........................................................................................................4
(b)Ratios......................................................................................................................................5
Find and elaborate non financial factors which can be used to evaluate performance of Omega
Ltd. .............................................................................................................................................7
Examine the effect of pricing policies on the performance of TESLA organisation..................8
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
The report prepared helps to give an idea about the performance indicators relating to
non-financial performance which help to assess and evaluate overall working of the company. It
explains importance of factors which are qualitative in nature but affect business through indirect
modes. It also helps to assess the effect of pricing strategies on the profit margin of organisation
and methods which would help to improve profitability in competitive market. It helps to
understand uses of ratios in the company and why budgets are important for companies. It gives
an overview of Omega Ltd through financial records prepared below. This report also gives an
idea how payback period is helpful, calculated and what would be the internal rate of return of
the company .(Rossi and et.al., 2021).
TASK
A) Investment Appraisal Analysis for the Project 1:
(I) Calculation of Payback Period:
Payback period simply use by the management of the entity in order to evaluate that how much
time the project will take in recover the initial amount of cash payment they have made in that
project. Payback period shows the time at which project is indifferent that is no profit and no loss
phase. (Figures in £)
Year Cash Inflow Cumulative Cash Inflow
1 150000 150000
2 180000 330000
3 140000 470000
4 110000 580000
5 150000 730000
6 100000 830000
Payback Period = Initial Amount of Investment / Cash Flows Per Year
= 3 + (550000-470000) / 110000
= 3 + 80000 / 110000

= 3.73 years.
From the above calculation we cab drawn that in project 1, the initial amount of investment made
by the entity is recovered in 3.73 years. Further the conclusion cab be drawn that such project is
beneficial for the business concern after 3.73 years.
(ii) Calculation of NPV:
The net present value method is the best and organised approach in order to select the project
under consideration. NPV method taken into account the time value of money which in
important at time of analysing the inflows. Under this present value of cash inflows are
calculated and reduced by cash outflow and the resultant outcome is NPV. Decision making is
based on this and if it is positive then project will be accepted otherwise not .(De MARINI,
B.R.U.N.O., 2019).
Years Cash Inflows Discounting @
12%
Present Value of Cash
Inflows
1 150000 0.893 133950
2 180000 0.797 143460
3 140000 0.712 99680
4 110000 0.636 69960
5 150000 0.567 85050
6 100000 0.507 50700
Total Cash Inflow 582800
Net present Value = (Present value of Cash Inflows – Cash Outflow)
= 582800 – 550000
= 32800
(iii) Internal Rate of Return:
IRR is the rate at which present value of cash inflow will be equals to present value of cash
outflow. Trial and Error method has been adopted in order to calculate IRR for the given set of
data. In this question we assure two different rates for discounting that is 10% and 20% in order
to calculate internal rate of return.
Year Cash
Inflow
Discounting @
10% Discounting @ 20% Present Value
@ 10%
Present
Value @
20%