Business Report on Investment Appraisal and Funding Options

Business Report

Contents
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................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 2............................................................................................................................................8
a) Suggest 3 alternative methods of funding...............................................................................8
b) Critically discuss the link between the above financing decision...........................................9
TASK 3............................................................................................................................................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 4..........................................................................................................................................11
Distinguish between centralised and decentralised procurement. Discuss the benefits of
centralised purchasing and decentralised purchasing................................................................11
CONCLUSION .............................................................................................................................13
REFERENCES..............................................................................................................................15

INTRODUCTION
A business report is a collection of data on a company's activities, production, and future goals.
This report mostly offers historical information regarding the company's operations. It assists the
many consumers of this report in critically analysing the possibilities given to them in order to
make a decision (Armstrong, and et.al., 2018). It is basing future judgments on the company
report's genuine historical facts. The major focus of this report is on the various accounting and
operational details of K plc. Part A of the study, which is broken into four parts, investigates the
project in which K plc. should spend. Part B discusses the various funding options available to
the firm. Part C examines the company's cost differences, while Part D provides an overview of
both centralised and decentralised procurement.
TASK 1
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
=614460 – 560000