Capital Investment Appraisal, CVP Analysis, Equity vs Bank Loan for Long-term Finance Requirements

Business Report

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
A......................................................................................................................................................3
1. Defining the significance of capital investment appraisal process..........................................3
2. Drafting cash flow analysis statement.....................................................................................3
3. Identifying payback period for the new investment................................................................4
4. Assessing the viability of proposed investment using net present value approach.................5
5. Describing the logic behind the net present value method and its association with cost of
capital...........................................................................................................................................6
6. Assessing internal rate of return..............................................................................................6
8. Stating reasons due to which NPV considered as better approach over IRR..........................7
B).....................................................................................................................................................7
Critically evaluating an equity issue with bank loan for all its long-term finance requirements 7
C).....................................................................................................................................................7
1. Presenting CVP analysis referring given scenario...................................................................7
2. What are the consequences pertaining to CVP analysis when price level changes.................7
D).....................................................................................................................................................8
1) Distinguishing the categories of suppliers...............................................................................8
2) Comparing the benefits of single and multiple sourcing with regards to procurement..........8
3) Explaining cross-sourcing and its benefit to the buyer...........................................................8

CONCLUSION................................................................................................................................8
REFERENCES..............................................................................................................................10

INTRODUCTION
In the dynamic business arena, success of business unit is highly influenced from
decisions undertaken by manager. There are several tools and techniques which manager can
undertake for assessing or evaluating business opportunities. Thus, it is an accountability of
manager to undertaken competent investment decisions which aid in the growth and profitability
of firm. The present report is based on S Plc which deals in computer games and now with the
motive to attain success company is planning to add new line. In this, report will provide deeper
understanding about the manner in which capital budgeting tools aid in investment decision
making or selection. Further, it also highlights the contribution of cost, volume and profit
relationship pertaining to financial decision making. Report also presents how bank loan source
is cheaper source in comparison to equity issuance. It also depicts the categories of suppliers
which S Plc can employ for the purpose of procurement.
TASK
A
1. Defining the significance of capital investment appraisal process
Capital budgeting may be defined as a process which emphasizes on the selection of
project which aid in firm’s value. According to the given case scenario, S plc is planning to
include new line of computer game which requires initial investment of £1300000. In this regard,
capital budgeting tools are considered as highly significant as it helps in creating both
accountability and measurability. In other words, by applying investment appraisal tools such as
payback period, NPV and IRR S Plc can assess whether long term investment will maximize
shareholder’s wealth or not (Kengatharan, 2018). In addition to this, concerned tools and
techniques assist in evaluating risk and profitability, associated with the potential investment, to
the large extent.
2. Drafting cash flow analysis statement
Initial investment
Particulars Figures