Business Report on Project Selection and Funding Methods

Business Report

TABLE OF CONTENTS
INTRODUCTION.........................................................................................................................................3
PART A..........................................................................................................................................................3
a) Payback period calculation....................................................................................................................3
b) NPV for all projects...............................................................................................................................4
c) Rank the projects on the basis of Pay back as well as NPV..................................................................5
d) Selecting the project..............................................................................................................................6
e) Strength and weaknesses of payback period and net present value method..........................................6
f) Qualitative factors which help the directors in making a final payment................................................7
PART B..........................................................................................................................................................8
a) Alternative methods of funding.............................................................................................................8
b) Link between the financing and investment decision in relation to acquisition....................................8
PART C..........................................................................................................................................................9
a) Prepare a full variance analysis statement of variable cost elements....................................................9
b) Possible explanations for variances identified.....................................................................................11
PART D........................................................................................................................................................11
Centralised and decentralised procurement.............................................................................................11
CONCLUSION............................................................................................................................................13
REFERENCES.............................................................................................................................................14

INTRODUCTION
A business report is a collection of information on a company's activities. This report is
being written with the intention of determining appropriate plans for the company. It includes a
comparison of numerous projects and expenditures, as well as a study of the real outcomes. K plc
is the company chosen for this research. It is a publicly listed company. The research is broken
down into four sections (Drobetz and Johns, 2018). Its first portion examines the different refers
to a process and makes a suggestion for the highest achievement. The second portion informs the
company about the different financial applications accessible to it and the optimum one to use
for purchase purposes. The third compares the firm's projected figures to the original results in
order to assess its effectiveness. The fourth part compares and contrasts decentralized versus
centralized buying, as well as their benefits.
PART A
a) Payback period calculation.
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 up to 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) NPV 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