Project Evaluation & Capital Budgeting

This assignment presents a comparative analysis of two potential projects, Project A and Project B. Students are tasked with calculating the Net Present Value (NPV) for each project over a five-year period. The NPV calculations involve considering both initial investment outlays and future cash inflows, discounted to reflect the time value of money. By comparing the calculated NPVs, students will identify which project presents the more attractive investment opportunity based on its potential financial return.

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Accounting For managers
Name:
Course
Professor’s name
University name
City, State
Date of submission

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Executive summary
This report focuses on the effectiveness of organizational structures on different organizations
like Amazon.com. It describes a system of interactions among different members of the
organizations and its structural design. The report also covers the revenue growth of the
company and the demand and supply factors in attainment of the revenue growth. It also defines
the economic concepts of the supply side policies, competitive policies and the fiscal policies of
the UK government in its ultimate desire to create a good market for its goods.

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Table of Contents
Introduction......................................................................................................................................2
Q1. Amazon organizational structure..........................................................................................2
Q2. Effects of price on Demand and supply................................................................................5
Q3.Business economics concepts of competition policy, fiscal policy& supply side policies....7
Question 4– Investment analysis of a company...........................................................................9
Question 6- Financial intermediation process............................................................................10
6a. financial ratio Analysis.........................................................................................................12
References......................................................................................................................................17

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Introduction
Q1. Amazon organizational structure
Amazon.com has got an organizational structure that enables it to have an extensive control on
global e- commerce operations. The structure establishes the system of interaction and design
among the members of the organization. For example, the structure of Amazon.com determines
how senior members of the management team influence and direct operational activities in
various business areas. The company maintains a business structure that supports the company’s
expansion strategy being that the company is a leading online retailer. The company’s
organizational structure enables managerial control(Goel, 2015).
The company has a functional organizational structure. The structures are important as they are
used to determine how the components of the organization interact with one another. The
characteristics of Amazon.com corporate structure are: The company has geographical divisions,
global hierarchy and a global function based groups which is the most significant feature.
Amazon.com has made a lot of headways globally, it has reached a point that people are
beginning to feel like the company is infiltrating everything from the traditional go to place for
books, cookware and electronics to many other merchandise. There are plenty of questions about
Amazon web services, its digital content creation and the growth of its computing offering. E-
commerce has always been and still is Amazon’s driving force. Globally, Amazon has not been
doing very well. For example in 2014, sales from revenues in the international market accounted
for only 37% of the total revenues for the company. The company’s net sales jumped by 22% in

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North America while international sales only increased by 12.5%(Capital Budgeting Valuation,
2013).
Image 1: Amazon.com revenue growth
Source: https://www.google.com/search?
q=amazon.com+revenue+indicators&source=lnms&tbm=isch&sa=X&ved=0ahUKEwiVyv
OH2dbXAhXFvRQKHQtzDEsQ_AUICygC&biw=1366&bih=672

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The company has been eyeing China and India as the next frontier for their business. The
population of these two countries would propel the company to greater heights if they manage to
effectively penetrate these markets(Horngren, 2014). The challenge for this is competition from
other companies such as Alibaba in China. The company’s corporate structure has been
instrumental in supporting growth on the international front in the e commerce market. The
continuous success of the company when expanding globally is an indictment of how well the
organizations corporate structure is suited to the company.
One of the strategies that Amazon.com has used consistently for growth purposes is acquisition
or partnership with a range of companies in different sectors. Some of the companies that
Amazon has partnered with a pharmaceutical company known as Drudstore.com, a furniture
store known as Living.com, Wineshopper.com for wines, homegrocer.com for groceries. It is
evident that during this period , the company’s share price has been on a steady rise(Kieso,
Weygandt and Warfield, n.d.).
Due to this expansion, Amazons share have soared in the fourth quarter of the 2016, analysts
predicted that the shares would earn only 17 cents , however, the earnings have surpassed the
predicted earnings to 45 cents per share. Long term investors should not ignore this performance
trend, as it comes in the backdrop of heavy investment to increase its global market share.
Q2. Effects of price on Demand and supply

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Potatoes price index increases due to various factors which includes demand and supply,
inflation levels and the amount of potatoes that have been produced by the farmers. In March
2017, the potato prices were 27% higher than in march 2016. This is partly due to the demand
and supply of potato by farmers in the UK. The government however can put policies in place to
curb the high rates of inflation and to cap the prices of potatoes in UK though very unlikely due
to the liberal market. Change in prices occurs when the legal limit of any commodity price is
removed by the government. For example if the government puts in policies that are meant to
reduce the high rates of inflation and to increase the availability of potatoes as a commodity of
trade. A shortage in potato production occurs when the farmers do not harvest the projected bags
of potatoes and this leads to an increase in demand and a shortage in supply. The elastic supply
in price may change or may be affected by price and demand and supply.
The UK department for Environmental and Rural Affairs, states that growers confidence
continue to limit the demand and supply of the potatoes. Inflation is caused when there is too
much money circulating in the economy. It is worthy to note that in this report, the
macroeconomic concepts of inflation are only determined by the policies that the UK
government puts in place.
The growth confidence has limited the supply of potatoes in the market where the potato index
only rose to a paltry 3.2% between February and March this year as compared to 9.6% increase
on the same period last year. This can be attributed to various factors and not necessarily the
economic factors in the economy.
The hypothetical examples in the UK economy is that as the supply drops and the demand
increases or remains the same as it were, the prices increases which is part of the economic

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situation.The various factors that that influence the price elasticity of demand is generally the
micro and macro-economic factors. The macroeconomic is the basic external environment of the
economy where things such as government policies(Wild, Shaw and Chiappetta, n.d.). The 9.6 %
increase in production cost in 2016 means that the economy is somehow saturated by potatoes
therefore making the prices of potatoes reduce as many people will highly access the potatoes
without a lot of hindrances.
All this favored the existence of a simple concept of competence based exclusively on the final
price of the product as a competitive advantage compared to the rest of the producers present in
the same competitive environment, this situation originated as a logical consequence that
strategic policy of costs was to be the ultimate goal of strategic planning, while facilitating the
emergence of more rudimentary theories derived from such a cost strategy as the study of the
experience curve as a mechanism for achieving cost reduction. Increase in inflation means that
the supply of money in the economy is high and the price of potatoes will increase.
Subsequently, the government of UK will help in taming the prices of potatoes by implementing
fiscal and budgetary policies to enable the farmers produce more potatoes for the 2017 fiscal
year(Kieso, Weygandt and Warfield, n.d.). The UK has found the best policies in terms of
curbing inflation and increasing the supply of potatoes to the market at areduced price.The
growth confidence has limited the supply of potatoes in the market where the potato index only
rose to a paltry 3.2% between February and March this year as compared to 9.6% increase on the
same period last year (Kortmann, 2012).

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Q3.Business economics concepts of competition policy, fiscal policy& supply side policies
For the UK government to be prosperous and have a vibrant economy, the following policies
should be put in place. The first is the competitive policy , where there should be healthy and
fair competition in all business. The business concepts in economics in a competitive policy is a
derivative of the government that seeks to provide fair fiscal policies and supply side policies
that enhance businesses in the country. This should make sure that there is no monopolization of
a particular industry. Unfair competitive practises in business leads to monopolization of an
industry which will result to dominant player dictating the prices at the market and therefore
leading to closure of businesses (Lee and Hales, 2003).
Fiscal policies are used by the governments to help revamp the economy. Examples include;
cutting taxes by the government. When taxes are reduced, it means that there will be more
money circulating in the economy and therefore the need to make prudent fiscal policies.This
two policies increase the aggregate demanded while also making contributions to deficits and
drawingdown of surpluses by government and influencing the supply side of the
Distinguishing between the various activities that formed the value chain of that industry or
company, in order to define in a more precise and weighted way the real importance of each
phase of production in the final result obtained and the costs generated by it, in order to see the
concrete possibilities of action in the policy of cost reduction, achieving more efficient results in
the reduction of the final cost and the increase of added value; it can be said that at this stage, the
cost strategy establishes much more complex and precise mechanisms of study destined to

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obtain a much greater precision than previously existing, this period begins with the analysis of
activities of the McKinsey business system and culminates with the great theoretical
contribution of Porter's value chain (Lee and Hales, 2003).
The new visionaries of strategic management intuit that differentiation is the only possible tool
to create an effective competitive advantage, once the competitive advantages based on the
reduction of costs have been exhausted, since the very concept of differentiation is related to
those other phases of the production chain (technology, marketing, logistics, research) that still
have some flexibility and scope for action in the economic structures of the more developed
countries. Labor had become the great competitive burden of business in developed countries
because it was the phase of the value chain more onerous for the whole of production, to the
point of displacing the rest of the elements of production (technologies, marketing, logistics).
Stiffness was one of the characteristic elements of this phase of the production chain and the
labor force, due to events outside of business management (labor legislation, trade union power,
high purchasing power of the Western countries), which meant that the phase of the production
chain that most affected in the final cost of the product was at the same time the element with
less margin of variation or possibilities of modification (Graubner, 2006). The savings that could
be co to continue through the greater efficiency of the organization of the remaining phases of
the production chain, as well as the introduction of new technologies, successful marketing
campaigns or the definition of more economical logistic flows, all this was not enough to
compensate for the influence negative that had the labor factor or human resources in the final
output of a production to the market. So, we see as the appearance of an availability of a good
supplier.

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Unfair competitive practises in business leads to monopolization of an
industry which will result to dominant player dictating the prices at the market and therefore
leading to closure of businesses.
Question 4– Investment analysis of a company
The process of deciding and analysing the best long-term investment that a company should
undertake is known as capital budgeting decisions. On the other hand financial planning is the
process in which the management estimates the required capital for a certain project and
determining its competition. Financial planning is the process of enabling the company to frame
the best financial policies in relation to procurement, administration of funds and investment of
the said funds. Financial planning and control enables the management to make decisions with
regards to the requirements of capital in terms of short term and long term
requirements (Graubner, 2006).
Financial planning and control enables the company to make investment to get maximum
returns. The concept of financial planning is applied in the following ways by the management:
expansion and growth programmes which are carried out in the long run are made on the basis of
financial planning and control concept. Second, the management is able to reduce uncertainties
by having enough funds in regard to changing market trend. This helps in ensuring that
profitability and stability is achieved in the company (Kortmann, 2012).
For example, when making capital budgeting decisions, the management must consider time
value for money. This concept is premised on the notion that a dollar received today is more than

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that amount in the future (Hansen, 2013). So for capital budgeting decisions is how to value
future cash flows in today’s currency worth. Investment done for long term is done after
knowing how much cash in today’s terms would be received as a result of the investment. For
example if you invest $10,000 today and expect to receive $10200 after 10 years, one would
probably think twice before investing.
Question 5- Financial intermediation process
Financial intermediation is the process in which a financial institution or any other party raises
money from the public and places it or lends to third parties. This activity is normally carried out
by banks and cooperative institutions(Cottarelli, 2014) . This process involves two operations
which are raising funds and delivery of the raised funds to the third party. It is important to note
that not all lending companies engage in financial intermediation activities. Financial
intermediation is a system made up of mechanisms and institutions that allow channeling the
resources of surplus agents to the deficit agents. The financial intermediation system can be:
a) Indirect Intermediation System and
b) Direct Intermediation System
Indirect financial intermediation occurs when there is an intermediary between the surplus and
deficit agents. The financial intermediaries are mainly the banks that capture the resources of the
surplus agents, under their entire responsibility and then place them among their clients at their
risk.
The bank pays for the funds raised (deposits) the passive interest rate, and charges for the
resources provided by the active interest rate; the active interest rate is higher than the passive

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interest rate, the difference between these rates is the bank's margin or what it earns through
intermediation, it is also known as the financial spread (Kortmann, 2012).
Types of Financial Instruments Instruments of fixed income are debt securities that represent an
obligation contracted by the issuer which generates the payment fixed periodic interest and
repayment of capital May be classified according to their maturity in short and long term
instruments. This Allows investors to choose a higher yield but subject to risk , Allows greater
efficiency to the capital market. It is imperative to note that not all lending companies engage in
financial intermediation activities. Some are involved in other activities different from the
financial intermediation which is also good for financial institutions.
6a. financial ratio Analysis
Morrisons
Ratios Formulae 2014 2015
Net profit
margin
Net Income *
Net Sales
189.875/16,317=
0.0116
196.733/16,122=
0.0122
Price
earnings
ratio
Net income/ Number of
outstanding shares
319/430.23=
0.8633
328.813/489.96=
0.741
Current ratio Current Assets 1249.17/876.46= 1332.96/706.71=

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Current Liabilities 1.42 1.89
Quick ratio Cash + Accounts
Receivable
Current Liabilities
335.32+462.67/876.46=
0.91
387.18+504.77/706.71=
1.26
Debt ratio Total debt/ total assets 1701.6/4302.2=
0.395
1792.3/4489.9=
0.399
Tesco
Ratios Formulae 2014 2015
Net profit
margin
Net Income *
Net Sales
328/49,853=
0.059
272/48,352=
0.006
Price Net income/ Number of 328/4302.23= 272/4489.96=

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earnings
ratio
outstanding shares 0.74 0.74
Current ratio Current Assets
Current Liabilities
1249.17/876.46=
1.42
1332.96/706.71=
1.89
Quick ratio Cash + Accounts
Receivable
Current Liabilities
335.32+462.67/876.46=
0.91
387.18+504.77/706.71=
1.26
Debt ratio Total debt/ total assets 1701.6/4302.2=
0.3949
1792.3/4489.9=
0.3991
b)Future value

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Fanta deposits £400 at the end of the first year, £300 at the end of the second year, and £250 at
the end of the third year. If the account earns 5.5 percent interest each year, calculate the future
value of this uneven cash flow stream
Future value=present value(1+r)n
1st year= 400(1+0.055)3=
400*1.174=469.6
2nd year=300(1+0.055)2=
300*1.113=333.1
3rdyear=250(1+0.055)1=
250*1.055=263.75
Future value =$1066.45

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PROJECT A
YEAR CASHINFLOWS NPV(1+n)r CF
1 25,000 1.1025 27,562.5
2 15,625 1.2155 18992.2
3 5,000 1.34 6700
4 12,000 1.477 17724
5 32,000 1.629 52128
TOTAL NPV 123106.7
LESS:CASHOUTLAY (50,000)
73,1036.7
PROJECT B
YEAR CASHINFLOWS NPV(1+n)r CF

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1 0 1.1025 0
2 0 1.2155 0
3 0 1.34 0
4 0 1.477 0
5 99,500 1.629 162085.5
TOTAL NPV 162085.5
LESS:CASHOUTLAY (50,000)
112085.5
Project B is the best option because it has higher cash inflow.
References
Capital Budgeting Valuation. (2013). Hoboken, N.J.: Wiley.
Cottarelli, C. (2014). Post-crisis fiscal policy. Cambridge [u.a.]: MIT Press.
Goel, S. (2015). Capital Budgeting. Business Expert Press.
Graubner, M. (2006). Task, firm size, and organizational structure in management consulting.
Wiesbaden: Deutscher UniversitSts-Verlag.
Hansen, A. (2013). Fiscal Policy & Business Cycles. Hoboken: Taylor and Francis.
Horngren, C. (2014). Accounting. Toronto: Pearson Canada.