Business Investment Analysis 2022

Running head: BUSINESS INVESTMENT
Business Investment
Name of the Student:
Name of the University:
Author’s Note:

1BUSINESS INVESTMENT
Business Investment
The financial analysis has been well carried out for the Vinyl Fencing Company in which
the financial aspects of the company has been well covered. As an owner of the company the
company is well aiming to make plans for large plans of purchases that would be done in the
next three to five years of time period for well achieving the goals of the business.
Future Value of Annuity
Ordinary Annuity: The future value of the annuity has been well calculated for each of the
presented two options. The first option involves saving via the ordinary annuity in which if a
savings of $2500 is invested into a quarterly basis, using a 8% interest rate and the future value
for the sum would be around $60,743.42 for the annuity investment that would be done.
Annuity Due: If the quarterly savings of $2500 is invested into the investment fund with the
help of the annuity due approach then the fund on an approximately be generating around
$61,958.29 which is slightly higher than the ordinary annuity and in turn would be providing a
higher value of investment return for the owner.
Sinking Fund Payment:
In order to well purchase the machinery which is of worth $45,000 needs to save around $6,451
on a semi-annual basis and invest the same into the account that would be generating a return of
12% compounded on a semi-annual basis.

2BUSINESS INVESTMENT
Future Value of Annuity
Ordinary Annuity
Particulars Amount
Quarterly Investment $ 2,500.00
Time Frame (In Years) 5
Time Frame (In Quarters) 20
Annual Interest Rate 8%
Future Value of Annuity $ 60,743.42
Annuity Due
Particulars Amount
Quarterly Investment $ 2,500.00
Time Frame (In Years) 5
Time Frame (In Quarters) 20
Annual Interest Rate 8%
Future Value of Annuity $ 61,958.29
Sinking Fund Payment
Machine Value 45,000
Time Frame (In Years) 3
Compounding Frequency Semi-Annually
Total Time Period in Years 6
Annual Interest Rate 12%
Savings Required Semi-Annually $ -6,451.32
Effective Annual Interest Rate
Option 1 8.22%
Option 2 12.36%
Comparing and Contrasting Options
In order to well compare Purchase 1 and Purchase the analysis of both the options can be
done by well using the effective annual interest rate that has been generated from each of the
fund that has been analysed. In the first option the effective annual interest rate was determined
to be 8.22% and the amount that was generated was around $60,743 in ordinary annuity and
$61,958 in annuity due in a span of five years (Jaggi, Khanna & Nidhi, 2016). While on the other
hand the effective annual interest rate in the second option has been around 12.36% and the

3BUSINESS INVESTMENT
amount that has been generated by the purchase option was around $45,000 in a span of three
years. From an interest rate perspective purchase 2 is most favourable as the rate is higher and on
the other hand side when comparing with higher cash flows or amount basis purchase 1 that is
annuity option will be considered (Khir & Fairooz, 2013).
Analysing Options
In order to well prioritize and select options one must well consider the investment and
borrowings options that is available to the owner to the company. As analysed it can be well
financed that the interest rate offered in the Sinking Fund Account is greater that is around 12%
which would allow him to earn a greater sum of money and at the time save money rather than
borrowing the fund. At the same time what he can do is borrow money after a sum of three years
when he well starts his business by taking a amortized loan or mortgage loan against the assets
that he would well purchase after a sum of three years with the savings done. Now considering
the fact that this will be a mortgage loan where the purchased asset would be kept as a mortgage
the company can not only use the asset but also take a loan against the same this would help the
owner serve the business asset requirement as well as the financial requirement.

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References
Jaggi, C., Khanna, A., & Nidhi, N. (2016). Effects of inflation and time value of money on an
inventory system with deteriorating items and partially backlogged
shortages. International Journal of Industrial Engineering Computations, 7(2), 267-282.
Khir, A., & Fairooz, M. (2013). The concept of the time value of money: A Shari ‘ah
viewpoint. International Journal of Excellence in Islamic Banking and
Finance, 182(882), 1-30.
Lucko, G. (2013). Supporting financial decision-making based on time value of money with
singularity functions in cash flow models. Construction Management and
Economics, 31(3), 238-253.