Business Accounting Report: Investment Analysis of Restaurant Projects

This report analyzes two potential Caribbean restaurant investment projects, one in London and one in Birmingham, using various financial techniques. The assignment employs investment appraisal methods, including payback period, average rate of return (ARR), and net present value (NPV), to evaluate the viability of each project. Break-even analysis is also used to determine the sales volume required for each location to achieve profitability. The report further incorporates qualitative factors, such as market competition, labor costs, and pricing strategies, to provide a comprehensive assessment. The analysis concludes with a recommendation for the most favorable investment option based on the quantitative and qualitative data, aiming to maximize the overall return on investment for the business. The report includes a detailed introduction, analysis of quantitative and qualitative data, and a final recommendation, supported by references to relevant academic sources.

Running head: BUSINESS ACCOUNTING
Business Accounting
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

1BUSINESS ACCOUNTING
Table of Contents
1. Introduction:................................................................................................................................2
2. Investment appraisal for both projects:........................................................................................2
3. Break-even analysis for both projects:........................................................................................3
4. Analysis of quantitative and qualitative data:..............................................................................3
5. Recommendation for future investment:.....................................................................................7
6. Conclusion:..................................................................................................................................7
References:......................................................................................................................................9

2BUSINESS ACCOUNTING
1. Introduction:
The current assignment would focus on analysing the viability of two projects, in which
Alex is planning to open a Caribbean restaurant either in London or Birmingham. For evaluating
the two options, different investment appraisal techniques are taken into consideration. These
mainly include payback period, average rate of return and net present value. In addition, break-
even analysis is another quantitative technique used for evaluating the feasibility of the two
projects. Finally, the projects have been assessed by considering their qualitative aspects based
on the provided information.
2. Investment appraisal for both projects:

3BUSINESS ACCOUNTING
3. Break-even analysis for both projects:
4. Analysis of quantitative and qualitative data:
Quantitative analysis:
Alex has two alternatives, which include London and Birmingham. Firstly, three
investment appraisal techniques are used for analysing the viability of the two projects and they
include the following:
Payback period:

4BUSINESS ACCOUNTING
In the words of Cañibano (2018), payback period denotes the amount of time taken for
recovering the cost of investment. In other words, payback period denotes the amount of time an
investment arrives at break-even point. The suitability of an investment is associated directly
with its payback period. If the payback period of a specific project is shorter, it denotes
increasingly attractive investments. In case of Birmingham option, payback period is computed
as 3.10 years. On the other hand, for the London option, payback period is obtained as 3.40
years. From this perspective, Birmingham option is deemed to be favourable for Alex, as the
individual would be able to recover his investment within shorter timeframe than London option.
Average rate of return:
As mentioned by Collier (2015), average rate of return is the percent rate of return on
investment in contrast to the cost of initial investment. However, this technique does not take
into account cash flows or time value of money, which could be a vital portion of maintaining a
business. A higher value indicates more return to the organisation. In the current case, the
average rate of return of Birmingham option is calculated as 39.90%, while the average rate of
return of London option is obtained as 36%. Therefore, from this perspective, Birmingham
option is deemed to be profitable for Alex.
Net present value:
Net present value could be defined as the present value of the expected cash flows of an
investment less the acquisition cost of an investment (Collis, Holt & Hussey, 2017). With the
help of this method, it is possible to evaluate an investment decision along with providing the
management a clear overview to tell if the investment would add value to the organisation. A
higher net present value is always desirable from the organisational perspective (Kieso,

5BUSINESS ACCOUNTING
Weygandt & Warfield, 2016). In this case, Birmingham option has net present value of £53,370,
while net present value of London option is computed as £64,750. Therefore, from the
perspective of NPV, London option is analysed as favourable for Alex.
For undertaking final decision, it is necessary for Alex to consider other techniques
besides investment appraisal. Therefore, the use of break-even analysis has been made for
analysing the suitability of the proposed options.
Break-even analysis of Birmingham option:
0 50 100 150 200 250 300 350 400 450 500
£-
£1,000
£2,000
£3,000
£4,000
£5,000
£6,000
Break-Even Point of Birmingham Option
Total Cost
Sales
Break-even analysis helps in calculating and investigating the margin of safety for an
organisation depending on the revenues collected and related costs (Duska, Duska & Kury,
2018). The analysis of various price levels associated with various demand levels of demand
utilises break-even analysis for ascertaining the necessary level of sales in order to cover the
fixed expenses of an organisation. With the help of demand-side analysis, a seller could obtain
considerable overview about the selling abilities (Gray, Adams & Owen, 2014). In case of

6BUSINESS ACCOUNTING
Birmingham option, Alex needs to sell 222 meals for remaining at no-profit-no-loss situation.
Thus, Alex needs to generate at least £2,222 in order to avoid suffering loss.
Break-even analysis of London option:
0 50 100 150 200 250 300 350 400 450 500
£-
£1,000
£2,000
£3,000
£4,000
£5,000
£6,000
£7,000
Break-Even of London Option
Total Cost
Sales
Break-even analysis is useful to ascertain the production level or any targeted desired
sales mix (Horngren & Harrison, 2015). This study is vital for the management only, as the
computations and metric are not essential for external sources like regulators, investors, financial
institutions and others. Generally, an organisation having lower fixed costs would have lower
break-even selling point. This analysis is crucial for the investors like Alex as well, since they
could use the same for determining the break-even price on any investment or trade (Hoyle,
Schaefer & Doupnik, 2015). In case of London option, Alex needs to sell a minimum of 300
units for achieving break-even point. The computation is beneficial when trading in or
developing a strategy for making investment decisions in a project. This implies that sales
revenue of £3,600 needs to be generated for avoiding suffering any loss.
Qualitative analysis:

7BUSINESS ACCOUNTING
From qualitative perspective, it could be stated that Birmingham location has numerous
hotels, bars, family entertainment services and nightclubs and thus, Alex might experience
intense competition in the market. On the other hand, in the London area, most businesses are
start-ups and the middle class individuals are looking for local entertainment compared to the
central London entertainment. Hence, Alex would face lower competition in this area. However,
in terms of finding cheap labour, Birmingham is found to be a better option, since many
university students are willing to work part-time. On the other hand, in London area, delivery
costs are observed to be high and this would increase the overall expenses of Alex (Scholes,
2015). Although there would be lower competition in London area; however, it has to adopt
premium pricing strategy, which might minimise the overall profitability of the organisation.
5. Recommendation for future investment:
After consideration of the techniques of investment appraisal and break-even analysis, it
could be seen that in terms of payback period and average rate of return, Birmingham option is
deemed to be more favourable for Alex. However, in terms of net present value, it is found that
London area would provide more return to Alex compared to the area of Birmingham. If only
investment appraisal techniques are taken into consideration, London option would have been
recommended, since net present value is the most superior measure of capital budgeting (Kaplan
& Atkinson, 2015). On the other hand, in terms of break-even analysis, it could be seen that Alex
has to make additional sales in London area for achieving break-even. The qualitative analysis
supported the fact that Birmingham area would be a more profitable option for Alex in order to
undertake investment. Hence, it is recommended to Alex for maximising his overall profitability
on investment.

8BUSINESS ACCOUNTING
6. Conclusion:
Based on the above discussion, it could be stated that different investment appraisal
techniques are used for evaluating the feasibility of the two options, which include Birmingham
and London. From the investment appraisal techniques, it has been found that Birmingham
option is more profitable in terms of average rate of return and payback period, while London
option is favourable in terms of net present value. By using the break-even analysis, it has been
found that Alex has to incur more expenses for opening store in London area than Birmingham
area. Therefore, it is advised to Alex to continue with the Birmingham option so that his overall
return on investment could be maximised.

9BUSINESS ACCOUNTING
References:
Cañibano, L. (2018). Accounting and intangibles. Revista de Contabilidad-Spanish Accounting
Review, 21(1), 1-6.
Collier, P. M. (2015). Accounting for managers: Interpreting accounting information for
decision making. John Wiley & Sons.
Collis, J., Holt, A., & Hussey, R. (2017). Business accounting. Palgrave.
Duska, R. F., Duska, B. S., & Kury, K. W. (2018). Accounting ethics. Wiley-Blackwell.
Gray, R., Adams, C., & Owen, D. (2014). Accountability, social responsibility and
sustainability: Accounting for society and the environment. Pearson Higher Ed.
Horngren, C., & Harrison, W. (2015). ACCOUNTING: BSB110. Pearson Higher Education AU.
Hoyle, J. B., Schaefer, T., & Doupnik, T. (2015). Advanced accounting. McGraw Hill.
Kaplan, R. S., & Atkinson, A. A. (2015). Advanced management accounting. PHI Learning.
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2016). Intermediate Accounting, Binder Ready
Version. John Wiley & Sons.
Scholes, M. S. (2015). Taxes and business strategy. Prentice Hall.