Business Report on Investment Appraisal Techniques, Funding Options, Variance Analysis, and Procurement Practice

BUSINESS REPORT

Table of Contents
INTRODUCTION...........................................................................................................................3
[A]....................................................................................................................................................3
a. Calculation of payback period for all the project.....................................................................3
b. Calculation of Net present value for all the projects...............................................................4
c. Ranking the project on the basis of both payback and net present value................................5
d. Selection of project if the projects are mutually exclusive......................................................5
e. Strengths and weaknesses of payback period and net present value methods.........................6
f. Five qualitative factors.............................................................................................................6
[B]....................................................................................................................................................7
(a).................................................................................................................................................7
(b).................................................................................................................................................8
[C]....................................................................................................................................................9
(a) Preparation of full variance analysis statement for K Plc manufacturer................................9
(b) Explanation of Variance Identified........................................................................................9
[D]..................................................................................................................................................10
Difference between centralised and decentralised procurement................................................10
Benefits of centralised purchasing and decentralised purchasing.............................................11
CONCLUSION..............................................................................................................................13
REFERENCES................................................................................................................................1

INTRODUCTION
Financial management is a process defined as managing the financial requirements of the
organisation. This report will discuss the concept of investment appraisal techniques. Different
funding options available with the business will also discuss in this project. Furthermore, concept
of variance analysis will be discussed in this project. Procurement practice will also be a part of
evaluation in this project. Benefits related to the centralised procurement practice and
decentralised procurement practice will discuss in this project.
[A]
a. Calculation of payback period for all the project
Payback period for the
Project A
Payback period = Total initial investment / Annual net cash inflow
Initial investment of A = 1000000
Annual net cash inflow = 300000
Therefore, payback period for A = 1000000 / 300000 = 3.3 or 3 years 3 months.
Project B
Initial investment = 400000
Annual cash net inflow = 100000
Payback period = 400000 / 100000 = 4 years.
Project C
Initial investment = 700000
Annual cash net inflow = 200000
Payback period = 700000 / 200000 = 3.5 years or 3 years six months
Project D
Initial investment = 614500
Annual cash net inflow = 100000
Payback period = 614500 / 100000 = 6.15 years or 6 years 2 months
Project E
Initial investment = 500000
Annual cash net inflow = 120000
Payback period = 500000 / 120000 = 4.17 or 4 years and 2 months

Project F
Initial investment = 560000
Annual cash net inflow = 100000
Payback period = 560000 / 100000 = 5.6 or 5 years and 7 months.
Project G
Years Cash flows Cumulative cash flow
0 -200000 -200000
1 100000 -100000
2 100000 0
3 80000 80000
4 80000 160000
5 80000 240000
6 80000 320000
From the above table it can be determined that in the second year, the cumulative cash flow is
equivalent to 0 and before and after that it was negative and positive respectively. Therefore, it
can be interpreted from it, that the payback period for this project is 2 years.
b. Calculation of Net present value for all the projects
Project
A
Project
B
Project
C
Project
D
Project
E
Project
F
Project
G
Initial investment 1000000 400000 700000 614500 500000 560000 200000
Project cash
inflows
year 1 300000 100000 200000 100000 120000 100000 100000
2 300000 100000 200000 100000 120000 100000 100000
3 300000 100000 200000 100000 120000 100000 80000
4 300000 100000 200000 100000 120000 100000 80000
5 300000 200000 100000 120000 100000 80000
6 300000 100000 120000 100000 80000
7 100000 120000 100000
8 100000 100000
9 100000 100000
10 100000 100000
Computation of NPV
PV factor Project
A
Project
B
Project
C
Project
D
Project
E
Project
F
Project
G