Business Report: Investment Appraisal and Financing Decisions

Business Report

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK A...........................................................................................................................................3
a) Calculation of Payback period for all projects........................................................................3
b) Calculation of Net present value for all projects. ..................................................................4
c) Ranking the projects on the basis of payback and net present value......................................5
d) Which project may be selected if projects are mutually exclusive? Explain your
recommendation..........................................................................................................................6
e) Discuss the strengths and weakness of payback and net present value methods in the
context of investment appraisal...................................................................................................6
f) Discuss five qualitative factors which the directors may need to consider before making a
final Decision..............................................................................................................................7
TASK B...........................................................................................................................................8
a) Suggest 3 alternative methods of funding...............................................................................8
b) Critically discuss the link between the above financing decision..........................................9
TASK C...........................................................................................................................................9
a) Prepare a full variance analysis statement of the variable cost elements................................9
b) From the available information suggest possible explanations for the variances identified.
...................................................................................................................................................11
TASK D.........................................................................................................................................11
Distinguish between centralised and decentralised procurement. Discuss the benefits of
centralised purchasing and decentralised purchasing...............................................................11
CONCLUSION .............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Business report refers to a series of information about a company's operations, production and
insights about what the company plans for future. This report contains mostly the historical data
about the company's working (Grefen and et. al., 2019). It helps the different users of this report
to critically analyse the options that they are available with to conclude a decision. It is taking
future decisions on the factual historical data present in the business report. In this report, the
main focus is on the different information which is accounting and operational of K plc. The
report is divided into four parts, part A researches the project which k plc. should invest in. part
B talks about the financing that the company can go with. Part C evaluates the company's cost
variances and Part D highlights the general overview of centralised and decentralised
procurement.
TASK A
a) Calculation of Payback period for all projects.
Payback period = Initial investment / Annual Cash flow
Table showing calculation of Payback period of Projects A-F
PROJECT Initial investment / Annual Cash flow Payback Period
A 1000000 / 300000 3.33 Years
B 400000 / 100000 4 Years
C 700000 / 200000 3.5 years
D 614500 / 100000 6.14 years
E 500000 / 120000 4.16 years
F 560000 / 100000 5.6 years
Project G (Using Cumulative cash flow)
YEAR ANNUAL CASH FLOW CUMULATIVE CASH FLOW
0 -200000 -200000
1 100000 -100000

2 100000 0
3 20000 20000
4 20000 40000
5 20000 60000
6 20000 80000
Payback period for Project G = The period upto n - 1 + Cumulative cash flow in n - 1 year / cash
inflow during the nth year
n= year in which cumulative cash flow turned positive
Payback period = 1 + 100000 / 100000
= 1 + 1
= 2 years
b) Calculation of Net present value for all projects.
NPV= (Annual Cash Flow * Annuity value) – Initial investment
Project A = ( 300000 * 4.3553) – 1000000
= 1306590 – 1000000
= 306590
Project B = (100000 * 3.1699) – 400000
=316990 – 400000
= (83010)
Project C = (200000 * 3.7908) – 700000
=758160 – 700000
= 58160
Project D = (100000 * 6.1446) – 614500
=614460 – 614500
= (40)
Project E = (120000 * 4.8684) – 500000
= 584208 – 500000
= 84208
Project F = (100000 * 6.1446) – 560000