Financial Analysis Project

This assignment delves into the analysis of a financial project. It requires students to calculate key metrics such as the payback period and Accounting Rate of Return (ARR) using present value calculations at a 12% discount rate. The assignment provides step-by-step solutions for cash flow projections, ARR calculation, and payback period determination. It also includes a detailed explanation of the project's financial feasibility based on these calculated metrics.

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Project Report: Accounting for business

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Executive summary
This description has been equipped to investigate 2 investment proposals. In this
paper, restaurant and new machineries, both investments have been analyzed. For it, various
techniques have been investigated according to the investment proposals. This report
expresses the reader about the diverse techniques that could be used to examine both the
investment proposal of the company. In this report paper, various aspects such as purpose of
the investment and the report, scope of the investment and the report, limitations etc have
been analyzed. Further, scope of investment and nature of investments also have been
examined. Further, investment opportunity of restaurant and new machineries has been
analyzed. Lastly, both the investment has been compared to find the better proposals of the
investment.

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Introduction:
The specified case study represent that 2 investment suggestions have been accessible
by the marketing student, Mark and Paul. They have briefed both the orders in front of many
people to make some investment into the opportunities and improve the value of invested
money. In this case study paper, different methods and equipment have been contested to
investigate and compare the best investment proposal into given proposals by the Mark and
Paul. Capital budgeting techniques and tools have been used in this report to analyze the first
investment proposal and budgeting techniques and tools have been used in this report for the
second proposal proposed by Mark and Paul (Garrison et al, 2010). This case study depict
that, the major aphorism of this report paper is to examine the best venture opportunity which
would present the people who has invested their amount, more return and the suggestion of
the asset would be striking for the people. More, various limitations and scopes are situated
of both the investment with the nature of the investment. Through this report, it has been
found that the opportunities and the nature of the business are more striking and these
opportunities make it a profitable deal for the investors as the investment would be higher.
Nature and scope of investment:
Investments are the amount which is proposed by an individual, government or a firm
into some financial securities or business proposals from their savings to encourage the value
of the savings amount. The investment is a back bone of every organization. If an
organization do not get any investment from the market then it becomes quite tough for the
organization to run the business (Brewer, Garrison and Noreen, 2005). The nature of the
investment is viable in nature and at the same time, the scope of investment is quite wider.
The investment opportunity must be analyzed by the investor before investing the amount in
that so that a better result could be got.
First Investment opportunity:
Mark and Paul, the marketing student of a university has proposed two investment
opportunity to invest and enhance the value of the money. First opportunity offered by them
is the investment into a new business, restaurant. In the case study, various revenues and
expenditure have been described by them which are required to start the business. Through
the case study, it has been found that the return from this technique could be investigated

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through the technique of budgeting report. Following are the details which have been given
by the Mark and Paul for this investment is:
Restaurant Purchase and Expenses
Machinery/ equipment $ 1,10,000
Furniture (tables and chairs) $ 30,000
Vehicle (Deliveries) $ 43,000
Utensils (cups, plates) $ 18,000
Produce (for 1 week) $ 10,000
Drinks (For 1 month) $ 20,000
Jun-01 Bank $ 80,000
Purchase of $10,000 for a week from June 1 and the amount of purchase
would be given to suppliers from 1 august.
Purchase of $ 20,000 for 1 month from July-1 and the amount
of purchase would be given to suppliers periodically which is as
follows:
10% in current month
45% in second month
45% in third month
Labour
Number of casual labour 3
Working in a day (hours) 6 hours
In a week (days) 6 days
Rate
$ 23 per
hour
Drawings
$ 10000 each per
month
Overhead $ 5,000
Sales
20000 meals in first month
18000 meals in second month
18000 meals in third month
22000 in forth month
Average selling price $ 45

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Drink sales would be triples the amount of
meals per month.
Drink Price $ 6
Through the above given details, return from this investment would be get through
applying the techniques of budgeting. Following are the details:
Sales budget:
From the above given details in the case study, the following calculations of sales
budget has been done. These depict about the total units of sales of meal and the drinks. As
well as the total sales of the restaurant has also been analyzed through this reports. The sales
budget of the company depict that the sales of the meal is 1/3rd of the total sales of drinks.
The total sales of the company has been analyzed $ 12, 60, 000 in June, $ 11, 34, 000 in July,
$11,34,000 in August and $ 13,86,000 in September. This depict that the high revenue could
be get by the investors through this business (Lafond and Roychowdhury, 2008).
Sales budget
For the year 2017
June July August September
Sales of
meals 20000 18000 18000 22000
Sales per
unit.
$
45
$
45
$
45
$
45
Sales price
$
9,00,000
$
8,10,000
$
8,10,000
$
9,90,000
Sales of
drink 60000 54000 54000 66000
Sales per
unit.
$
6
$
6
$
6
$
6
Sales price
$
3,60,000
$
3,24,000
$
3,24,000
$
3,96,000

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Total Sales
$
12,60,000
$
11,34,000
$
11,34,000
$
13,86,000
Labor budget:
From the above given details in the case study, the following calculations of labour
hour and labour rate has been done. These depict about the total labour hour as well as the
total labour expenses of the company. The labour budget of the company depict that the total
labour hours worked in the restaurant would be 432 hours in all the four months. The total
labour cost of the company has been analyzed which is $ 9,936 in June, $ 9,936 in July, $
9,936 in August and $ 9,936 in September. This depict that the labour cost is fixed in the
restaurant (Deegan, 2013).
Restaurant Purchase and Expenses
Labour budget
For the year 2017
June July August September
Number of labour 3 3 3 3
Working in a day (hours) 6 6 6 6
In a week (days) 6 6 6 6
Total weeks 4 4 4 4
Total Working hours 432 432 432 432
Rate 23 23 23 23
Total Labour rate 9936 9936 9936 9936
Cash budget:
From the above given details in the case study, the following calculations of total
cash flows have been done. These depict about the total cash inflows as well as the total cash
outflows of the company. The cash budget of the company depict that the total cash outflow
of the company in next four months would be $2,35,936, $36,936, $85,936 and $94,936. The
total cash inflow of the company has been analyzed which would be $ 12,60,000 in June, $
11,34,000 in July, $ 11,34,000 in August and $ 13,86,000 in September. This depict that the
cash inflow of the company is higher.

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Restaurant Purchase and Expenses
Cash budget
For the year 2017
June July August September
Beginning cash balance
$
80,000 1104064 2201128 3249192
Add: budgeted cash receipts for meal and
drinks
$
12,60,000
$
11,34,000
$
11,34,000
$
13,86,000
Total cash available for use
$
13,40,000
$
22,38,064
$
33,35,128
$
46,35,192
Less: cash disbursements
Direct Material of meals and drinks
$
2,000
$
51,000
$
60,000
direct Labour
$
9,936
$
9,936
$
9,936
$
9,936
Overhead
$
5,000
$
5,000
$
5,000
$
5,000
Withdrawals
$
20,000
$
20,000
$
20,000
$
20,000
Machinery
$
1,10,000
Furniture
$
30,000
Vehicle
$
43,000
Utensils
$
18,000
Total disbursements
$
2,35,936
$
36,936
$
85,936
$
94,936
Cash surplus
$
11,04,064
$
22,01,128
$
32,49,192
$
45,40,256
budgeted ending cash balance
$
11,04,064
$
22,01,128
$
32,49,192
$
45,40,256
Overview and analysis of budgets:
Through analyzing all the three budgets, it has been found that the restaurant proposal
is quite beneficial as the revenue as well as cash inflow of the company is quite higher than
the total expenses of the company. Through this report, it has also been found that high return
would be got through this investment proposal (Van der Stede, 2001).
Practical issues of investment:

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Various practical issues could impact over an investment opportunity. Through this
report, it has been found that the market changes, new competitors in the market, already
existed players, changes in the economy etc could impact over the opportunity negatively
which would make the return negative (Nobes & Parker, 2008).
Second Investment opportunity:
Mark and Paul, the marketing student of a university has proposed two investment
opportunity to invest and enhance the value of the money. Second opportunity offered by
them is the investment into new machineries. In the case study, various revenues and
expenditure have been described which are required to manage the machineries. Through the
case study, it has been found that the return from this technique could be investigated through
the technique of capital budgeting report (Needles, Powers and Crosson, 2013). Following
are the details which have been given by the Mark and Paul for this investment is:
Initial Cost
$ -
3,90,000
Cash Inflows
June
$
1,00,000
July
$
2,30,000
Aug
$
1,90,000
Sept
$
1,40,000
From the above given details in the case study, it has been found that the total net
present value of the investment opportunity would be $ 1,06,851.08 whereas the payback
period of the company would be 3.77 years and the average return of this investment
opportunity would be 27.40%.
Comparison:
Through analyzing both the investment proposal, it has been found that both the
investments are important for the point of view of the entrepreneur but according to the
investor, the business which offers more return with less risk is more suitable. In this report,
first investment proposal is more beneficial as this offers the high return to the investors than

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the second proposal. So an investor is suggested to invest into the first proposal but if
investor doesn’t want to face any risk then second option is better (Bierman, 2010).
Conclusion:
Thus through this report, it could be concluded that both the opportunities offered by
Mark and Paul for investment are better in their own way. First opportunity offer high return
but at the same time, risk is also higher whereas in second opportunity, less risk is situated.

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References:
Brewer, P.C., Garrison, R.H. and Noreen, E.W., (2005). Introduction to managerial
accounting. McGraw-Hill Irwin.
Bierman, H., (2010). An introduction to accounting and managerial finance: a merger of
equals. World Scientific.
Deegan, C., (2013). Financial accounting theory. McGraw-Hill Education Australia.
Garrison, R.H., Noreen, E.W., Brewer, P.C. and McGowan, A., (2010). Managerial
accounting. Issues in Accounting Education, (25(4), pp.79(2-793.
Lafond, R. and Roychowdhury, S., (2008). Managerial ownership and accounting
conservatism. Journal of accounting research, 46(1), pp.101-135.
Needles, B., Powers, M. and Crosson, S., (2013). Financial and managerial accounting.
Nelson Education.
Nobes, C. and Parker, R.H., (2008). Comparative international accounting. Pearson
Education.
Van der Stede, W.A., (2001). Measuring ‘tight budgetary control’. Management Accounting
Research, 1(2(1), pp.119-137.

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Appendix:
Restaurant Purchase and Expenses
Cash budget
For the year 2017
June July August September
Beginning cash balance $
80,000
1104064 2201128 3249192
Add: budgeted cash receipts for meal and
drinks
$
12,60,000
$
11,34,000
$
11,34,000
$
13,86,000
Total cash available for use $
13,40,000
$
22,38,064
$
33,35,128
$
46,35,192
Less: cash disbursements
Direct Material of meals and drinks $
2,000
$
51,000
$
60,000
direct Labour $
9,936
$
9,936
$
9,936
$
9,936
Overhead $
5,000
$
5,000
$
5,000
$
5,000
Withdrawals $
20,000
$
20,000
$
20,000
$
20,000
Machinery $
1,10,000
Furniture $
30,000
Vehicle $
43,000
Utensils $
18,000
Total disbursements $
2,35,936
$
36,936
$
85,936
$
94,936
Cash surplus $
11,04,064
$
22,01,128
$
32,49,192
$
45,40,256
budgeted ending cash balance $
11,04,064
$
22,01,128
$
32,49,192
$
45,40,256
working Note:
cash Schedule
For the year 2017
July August September

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Material Purchase 20000 20000 20000
Cash received 10% 2000 2000 2000
Cash received 45% 9000 9000
Cash received 45% 9000
Total cash received 2000 11000 20000
Restaurant Purchase and Expenses
Sales budget
For the year 2017
June July August September
Sales of meals 20000 18000 18000 22000
Sales per unit. $
45
$
45
$
45
$
45
Sales price $
9,00,000
$
8,10,000
$
8,10,000
$
9,90,000
Sales of drink 60000 54000 54000 66000
Sales per unit. $
6
$
6
$
6
$
6
Sales price $
3,60,000
$
3,24,000
$
3,24,000
$
3,96,000
Total Sales $
12,60,000
$
11,34,000
$
11,34,000
$
13,86,000

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Restaurant Purchase and Expenses
Labour budget
For the year 2017
June July August September
Number of
labour
3 3 3 3
Working in a day
(hours)
6 6 6 6
In a week (days) 6 6 6 6
Total weeks 4 4 4 4
Total Working
hours
432 432 432 432
Rate 23 23 23 23
Total Labour
rate
9936 9936 9936 9936
Calculation of NPV
Cash Flows PV @12% P.V.
$ -
3,90,000
1 $ -
3,90,000
$
1,00,000
0.893 $
89,286
$
2,30,000
0.797 $
1,83,355
$
1,90,000
0.712 $
1,35,238
$
1,40,000
0.636 $
88,973

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$
1,06,851.08
Calculation of Payback
Project 1 Cumulative cash flow
Initial Cost $ -
3,90,000
-
3,90,000
Cash Inflows
June $
1,00,000
-
2,90,000
July $
2,30,000
-60000
Aug $
1,90,000
130000
Sept $
1,40,000
270000
Payback 3.77
Calculation of ARR
Cash Flows PV @12% P.V.
$ -
3,90,000
1 -390000
$
1,00,000
0.892857143 89285.71429
$
2,30,000
0.797193878 183354.5918
$
1,90,000
0.711780248 135238.2471
$
1,40,000
0.635518078 88972.53098
106851.0842
ARR 27.40%