Financial Analysis and Investment Appraisal Report - University

This report provides a comprehensive analysis of financial decision-making for a business, evaluating various investment appraisal methods and their implications. It begins with a decision analysis for Dream Catcher, comparing international and domestic expansion with a no-change scenario, and recommends international expansion based on profit projections. The report then assesses mortgage alternatives for Kyle Dier, comparing lenders like HSBC-UK, Virgin Money, and Chesler Building Society, ultimately recommending HSBC for its lower monthly payments. Next, it reviews profitable models for a table product line, using linear regression across three scenarios to maximize profit. Finally, the report demonstrates investment appraisal methods such as net present value, internal rate of return, accounting rate of return, and payback period, analyzing investment projects for Pierce Plc, and recommending investment in product Y based on payback period and IRR criteria. The report also includes an analysis of expected and actual exam scores, covering topics in Quantitative Methods and Accounting.

Running head: BUSINESS
Business
Name of the Student
Name of the University
Author Note

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Table of Contents
Question 1:.................................................................................................................................3
Introduction:...........................................................................................................................3
Requirement a).......................................................................................................................3
Requirement b).......................................................................................................................4
Conclusion:............................................................................................................................4
Question 2:.................................................................................................................................5
Introduction:...........................................................................................................................5
Requirement a).......................................................................................................................5
Requirement b).......................................................................................................................5
Requirement c).......................................................................................................................9
Requirement d).....................................................................................................................12
Conclusion:..........................................................................................................................13
Question 3:...............................................................................................................................13
Introduction:.........................................................................................................................13
Discussion:...........................................................................................................................13
Conclusion:..........................................................................................................................17
Question 4:...............................................................................................................................18
Introduction:.........................................................................................................................18
Requirement a).....................................................................................................................18

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Requirement b).....................................................................................................................20
Requirement c).....................................................................................................................21
Conclusion:..........................................................................................................................21
Question 5:...............................................................................................................................22
Requirement a).....................................................................................................................22
Requirement b).....................................................................................................................23
Requirement c).....................................................................................................................24
References list:.........................................................................................................................26

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Question 1:
Introduction:
The report is prepared to conduct a decision analysis of three alternative actions that
would be selected by Dream catcher. These include international expansion, domestic
expansion and no change. Such courses of actions have been identified by analyzing the
strength and weakness of industry in which company operates.
Requirement a)
Normal View:
Particulars Pessimistic Average Optimistic TOTAL
(£000) (£000) (£000)
Probability 25% 55% 20% 100%
International Expansion:
Actual Profit 3750 6900 10950
Expected Profit 937.5 3795 2190 6922.5
Domestic Expansion:
Actual Profit 4300 7000 9750
Expected Profit 1075 3850 1950 6875
No Change:
Actual Profit 5500 6150 8350
Expected Profit 1375 3382.5 1670 6427.5
Formula View:

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Particulars Pessimistic Average Optimistic TOTAL
(£000) =B4 =C4
Probability 0.25 0.55 0.2 =SUM(B5:D5)
International Expansion:
Actual Profit 3750 6900 10950
Expected Profit =$B$5*B8 =$C$5*C8 =$D$5*D8 =SUM(B9:D9)
Domestic Expansion:
Actual Profit 4300 7000 9750
Expected Profit =$B$5*B12 =$C$5*C12 =$D$5*D12 =SUM(B13:D13)
No Change:
Actual Profit 5500 6150 8350
Expected Profit =$B$5*B16 =$C$5*C16 =$D$5*D16 =SUM(B17:D17)
Requirement b)
The recommendations to Dream catcher would be done based on analysis of profit of
three courses of actions. It can be seen that expected profit generated from international
expansion stood at ₤ 6922.5 and while expanding domestically would generate profit of ₤
6875. On other hand, when there is no change, then business is generating profit of ₤ 6427.5.
Therefore, from the expected profit figures, it can be seen that it would be viable to undertake
the project of expanding internationally.
Conclusion:
After conducting decision analysis of three alternative course of actions, it can be
concluded that Dream catcher should go for international expansion as it is generating higher
profit compared to other options.

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Question 2:
Introduction:
The report is prepared to ascertain the lenders for financing two possible properties
that Kyle Dier is seeking to buy. Mortgage alternatives are selected by determining applicable
interest rates and respective terms. Decision is also taken by considering several other factors.
Requirement a)
Three lenders that Kyle could borrow money for buying a one bedroom flat or a three-
bedroom house outside the town are ascertained. Such vendors include HSBC-UK, Virgin
money and Chesler building society. HSBC is one of the largest financial and banking service
organizations based in London. Virgin money is a provider of financial services that offers a
wide range of investment and savings product. Chesler building society is another financial
institution that offers financing and banking services.
Requirement b)
Normal View:
House within City:
Particulars
Interest Only Repayment Interest Only Repayment Interest Only Repayment
Property Value £3,50,000 £3,50,000 £3,50,000 £3,50,000 £3,50,000 £3,50,000
Less: Personal Contribution £1,20,000 £1,20,000 £1,20,000 £1,20,000 £1,20,000 £1,20,000
Balance Required £2,30,000 £2,30,000 £2,30,000 £2,30,000 £2,30,000 £2,30,000
Loan-to-Value Rate 80% 80% 75% 75% 65% 65%
Loan Amount £2,87,500 £2,87,500 £3,06,667 £3,06,667 £3,53,846 £3,53,846
Interest Rate p.a. 3.94% 3.94% 3.94% 4.79% 3.94% 4.99%
Period (in years) 20 20 20
Nos. of Payments p.a. 12 12 12 12 12 12
Total Nos. of Payments 240 240 240
Monthly Payment £943.96 £1,733.12 £1,006.89 £1,988.46 £1,161.79 £2,333.27
Bank Financial Service Provider Building Society

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House Outside City:
Particulars
Interest Only Repayment Interest Only Repayment Interest Only Repayment
Property Value £5,00,000 £5,00,000 £5,00,000 £5,00,000 £5,00,000 £5,00,000
Less: Personal Contribution £1,20,000 £1,20,000 £1,20,000 £1,20,000 £1,20,000 £1,20,000
Balance Required £3,80,000 £3,80,000 £3,80,000 £3,80,000 £3,80,000 £3,80,000
Loan-to-Value Rate 80% 80% 75% 75% 65% 65%
Loan Amount £4,75,000 £4,75,000 £5,06,667 £5,06,667 £5,84,615 £5,84,615
Interest Rate p.a. 3.94% 3.94% 3.94% 4.79% 3.94% 4.99%
Period (in years) 20 20 20
Nos. of Payments p.a. 12 12 12 12 12 12
Total Nos. of Payments 240 240 240
Monthly Repayment £1,559.58 £2,863.41 £1,663.56 £3,285.28 £1,919.49 £3,854.97
Bank Financial Service Provider Building Society
Formula View:
House within City:
Particulars
Interest Only Repayment Interest Only Repayment Interest Only Repayment
Property Value =C5 350000 =E5 =C5 =G5 =E5
Less: Personal Contribution =C6 120000 =E6 =C6 =G6 =E6
Balance Required =B5-B6 =C5-C6 =D5-D6 =E5-E6 =F5-F6 =G5-G6
Loan-to-Value Rate =C9 0.8 =E9 0.75 =G9 0.65
Loan Amount =B7/B9 =C7/C9 =D7/D9 =E7/E9 =F7/F9 =G7/G9
Interest Rate p.a. 0.0394 0.0394 0.0394 0.0479 0.0394 0.0499
Period (in years) 20 =C13 =E13
Nos. of Payments p.a. 12 12 12 =C14 12 =E14
Total Nos. of Payments =C13*C14 =E13*E14 =G13*G14
Monthly Payment =B11*(B12/B14) =PMT((C12/C14),C15,-C11,0) =D11*(D12/D14) =PMT((E12/E14),E15,-E11,0) =F11*(F12/F14) =PMT((G12/G14),G15,-G11,0)
Bank Financial Service Provider Building Society
House Outside City:
Particulars
Interest Only Repayment Interest Only Repayment Interest Only Repayment
Property Value =L5 500000 =N5 =L5 =P5 =N5
Less: Personal Contribution =L6 120000 =N6 =L6 =P6 =N6
Balance Required =K5-K6 =L5-L6 =M5-M6 =N5-N6 =O5-O6 =P5-P6
Loan-to-Value Rate =L9 0.8 =N9 0.75 =P9 0.65
Loan Amount =K7/K9 =L7/L9 =M7/M9 =N7/N9 =O7/O9 =P7/P9
Interest Rate p.a. 0.0394 0.0394 0.0394 0.0479 0.0394 0.0499
Period (in years) 20 =L13 =N13
Nos. of Payments p.a. 12 12 12 =L14 12 =N14
Total Nos. of Payments =L13*L14 =N13*N14 =P13*P14
Monthly Repayment =K11*(K12/K14) =PMT((L12/L14),L15,-L11,0) =M11*(M12/M14) =PMT((N12/N14),N15,-N11,0) =O11*(O12/O14) =PMT((P12/P14),P15,-P11,0)
Bank Financial Service Provider Building Society
Requirement c)
Normal View:

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House within City:
Particulars
Interest Only Repayment Interest Only Repayment Interest Only Repayment
Loan Amount £2,87,500 £2,87,500 £3,06,667 £3,06,667 £3,53,846 £3,53,846
Interest Rate p.a. 3.94% 3.94% 4.79% 4.79% 4.99% 4.99%
Period (in years) 2 2 2
Nos. of Payments p.a. 12 12 12 12 12 12
Total Nos. of Payments 24 24 24
Monthly payments £943.96 £1,733 £1,006.89 £1,988 £1,161.79 £2,333
Loan Value after 2 yrs. £2,87,500 £3,11,031.37 £3,06,667 £3,37,434.25 £3,53,846 £3,90,901.38
Interest Due in 2 years £0.00 £23,531.37 £0.00 £30,767.59 £0.00 £37,055.22
Total Value of Monthly
Repayments £0.00 £41,594.82 £0.00 £47,722.99 £0.00 £55,998.57
Principal Repayment £0.00 £18,063.44 £0.00 £16,955.40 £0.00 £18,943.35
Loan Balance after 2 yrs. £2,87,500.00 £2,69,436.56 £3,06,666.67 £2,89,711.26 £3,53,846.15 £3,34,902.81
Less: Partial Payment £75,000.00 £75,000.00 £75,000.00 £75,000.00 £75,000.00 £75,000.00
Loan Balance after Partial Payment £2,12,500.00 £1,94,436.56 £2,31,666.67 £2,14,711.26 £2,78,846.15 £2,59,902.81
Balance Period (in years) 18 18 18
Total Nos. of Payments Due 216 216 216
Monthly Payments ₹ 697.71 ₹ 1,258.20 ₹ 924.74 ₹ 1,485.26 ₹ 1,159.54 ₹ 1,825.80
Bank Financial Service Provider Building Society
House Outside City:
Particulars
Interest Only Repayment Interest Only Repayment Interest Only Repayment
Loan Amount £4,75,000 £4,75,000 £5,06,667 £5,06,667 £5,84,615 £5,84,615
Interest Rate p.a. 3.94% 3.94% 4.79% 4.79% 4.99% 4.99%
Period (in years) 2 2 2
Nos. of Payments p.a. 12 12 12 12 12 12
Total Nos. of Payments 24 24 24
Monthly Repayments £1,559.58 £2,863 £1,663.56 £3,285 £1,919.49 £3,855
Loan Value after 2 yrs. £4,75,000 £5,13,877.92 £5,06,667 £5,57,500.07 £5,84,615 £6,45,837.06
Interest Due in 2 years £0.00 £38,877.92 £0.00 £50,833.40 £0.00 £61,221.67
Total Value of Monthly
Repayments £0.00 £68,721.87 £0.00 £78,846.68 £0.00 £92,519.38
Principal Repayment £0.00 £29,843.95 £0.00 £28,013.28 £0.00 £31,297.70
Loan Balance after 2 yrs. £4,75,000.00 £4,45,156.05 £5,06,666.67 £4,78,653.39 £5,84,615.38 £5,53,317.68
Less: Partial Payment £75,000.00 £75,000.00 £75,000.00 £75,000.00 £75,000.00 £75,000.00
Loan Balance after Partial Payment £4,00,000.00 £3,70,156.05 £4,31,666.67 £4,03,653.39 £5,09,615.38 £4,78,317.68
Balance Period (in years) 18 18 18
Total Nos. of Payments Due 216 216 216
Monthly Repayments ₹ 1,313.33 ₹ 2,395.29 ₹ 1,723.07 ₹ 2,792.25 ₹ 2,119.15 ₹ 3,360.15
Bank Financial Service Provider Building Society

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Formula View:
House within City:
Particulars
Interest Only Repayment Interest Only Repayment Interest Only Repayment
Loan Amount =C23 =C11 =E23 =E11 =G23 =G11
Interest Rate p.a. =C24 0.0394 =E24 0.0479 =G24 0.0499
Period (in years) 2 =C25 =E25
Nos. of Payments p.a. =C26 12 =E26 =C26 =G26 =E26
Total Nos. of Payments =C25*C26 =E25*E26 =G25*G26
Monthly payments =B17 =C17 =D17 =E17 =F17 =G17
Loan Value after 2 yrs. =B23 =FV((C24/12),C27,0,(-C23),0) =D23 =FV((E24/12),E27,0,(-E23),0) =F23 =FV((G24/12),G27,0,(-G23),0)
Interest Due in 2 years 0 =C30-C23 0 =E30-E23 0 =G30-G23
Total Value of Monthly Repayments 0 =C28*C27 0 =E28*E27 0 =G28*G27
Principal Repayment 0 =C33-C32 0 =E33-E32 0 =G33-G32
Loan Balance after 2 yrs. =B30-B35 =C23-C35 =D30-D35 =E23-E35 =F30-F35 =G23-G35
Less: Partial Payment =C38 75000 =E38 =C38 =G38 =E38
Loan Balance after Partial Payment =B37-B38 =C37-C38 =D37-D38 =E37-E38 =F37-F38 =G37-G38
Balance Period (in years) =20-C25 =20-E25 =20-G25
Total Nos. of Payments Due =C40*C26 =E40*E26 =G40*G26
Monthly Payments =B39*(B24/B26) =PMT((C24/C26),C41,(-C39),0)=D39*(D24/D26) =PMT((E24/E26),E41,(-E39),0) =F39*(F24/F26) =PMT((G24/G26),G41,(-G39),0)
Bank Financial Service Provider Building Society
House Outside City:
Particulars
Interest Only Repayment Interest Only Repayment Interest Only Repayment
Loan Amount =L23 =L11 =N23 =N11 =P23 =P11
Interest Rate p.a. =L24 0.0394 =N24 0.0479 =P24 0.0499
Period (in years) 2 =L25 =N25
Nos. of Payments p.a. =L26 12 =N26 =L26 =P26 =N26
Total Nos. of Payments =L25*L26 =N25*N26 =P25*P26
Monthly Repayments =K17 =L17 =M17 =N17 =O17 =P17
Loan Value after 2 yrs. =K23 =FV((L24/12),L27,0,(-L23),0) =M23 =FV((N24/12),N27,0,(-N23),0) =O23 =FV((P24/12),P27,0,(-P23),0)
Interest Due in 2 years 0 =L30-L23 0 =N30-N23 0 =P30-P23
Total Value of Monthly Repayments 0 =L28*L27 0 =N28*N27 0 =P28*P27
Principal Repayment 0 =L33-L32 0 =N33-N32 0 =P33-P32
Loan Balance after 2 yrs. =K30-K35 =L23-L35 =M30-M35 =N23-N35 =O30-O35 =P23-P35
Less: Partial Payment =L38 75000 =N38 =L38 =P38 =N38
Loan Balance after Partial Payment =K37-K38 =L37-L38 =M37-M38 =N37-N38 =O37-O38 =P37-P38
Balance Period (in years) =20-L25 =20-N25 =20-P25
Total Nos. of Payments Due =L40*L26 =N40*N26 =P40*P26
Monthly Repayments =K39*(K24/K26) =PMT((L24/L26),L41,(-L39),0)=M39*(M24/M26) =PMT((N24/N26),N41,(-N39),0) =O39*(O24/O26) =PMT((P24/P26),P41,(-P39),0)
Bank Financial Service Provider Building Society
Requirement d)
The final decision of Kyle is based on factors such as monthly loan repayment and
loan to value ratio. It can be seen from the analysis of all three sources of finances that Kyle
would be required to make lower monthly payments if she chooses bank of its financing
source. However, the loan to value ratio is highest for bank as against building society and
virgin money. In all the scenarios presented in the table, lower monthly payment would be
made if loan is taken from HSBC bank as against building society and virgin money.

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Conclusion:
From the available mortgage alternatives, it can be seen that HSBC bank provides the
most feasible source of financing as the borrower would be required to make lower monthly
payments as against other two options available. Moreover, the amount of monthly interest
only payments for all the options are lower than the monthly interest, plus, principal
repayments. Hence, the borrower can opt for monthly interest only payments. However, in
such scenario, the borrower must have to accumulate the total principal amount separately
within 20 years.
Question 3:
Introduction:
The report is prepared to conduct the review of most profitable models so that it
would help in addressing the problem of lower profit in table product line. Analysis of daily
production mix is done by considering three different scenarios.
Discussion:
The linear regression for maximizing the profit in the given situation is stated below:
- Maximize z = (600y + 700y1 + 900y2 + 1050y3) – [15 x (11y1 + 12y3)] – [20 x (7y +
8y2)] – [10 x (6y+4y1+9y2+8y3)] – [25 x (1.5y+2.75y1 + 2y2+3.5y3)]
Subject to Constraints:
- 11y1 + 12y3 <=52000
- 7y + 8y2 <= 36000
- 6y + 4y1 + 9y2 + 8y3 <= 48500
- 1.5y + 2.75y1 + 2y2 + 3.5y3 <=20000
- y<= 3500

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- y1<=3000
- y2<= 1500
- y3<= 2000
Where, z = Profit
Y1= Nos. of Square Table Sold
Y2= Nos. of Round Table Sold
Y3= Nos. of Rectangular Table Sold
Y4= Nos. of Elliptic Table Sold
General Scenario:
Normal View:
Particulars Square Round Rectangular Elliptic TOTAL Max. Input
Maximum Demand 3500 3000 1500 2000
Maximum Demand 1470 2545 1500 2000
Price £600.00 £700.00 £900.00 £1,050.00
Total Sales £8,82,000 £17,81,500 £13,50,000 £21,00,000 £61,13,500
Wood per unit 11 12
Total Wood Required 27995 24000 51995 52000
Cost per unit £15.00 £15.00
Total Cost of Wood £4,19,925 £3,60,000 £7,79,925
Metal per unit 7 8
Total Metal Required 10290 12000 22290 36000
Cost per unit £20.00 £20.00
Total Cost for Metal £2,05,800 £2,40,000 £4,45,800
Other Material p.u. 6 4 9 8
Total Other Materials Required 8820 10180 13500 16000 48500 48500
Cost per unit £10.00 £10.00 £10.00 £10.00
Total Cost of Other Material £88,200 £1,01,800 £1,35,000 £1,60,000 £4,85,000
Labour Hour p.u. 1.5 2.75 2 3.5
Total Labor Hours 2205 6998.75 3000 7000 19203.75 20000
Labour Cost per hour £25.00 £25.00 £25.00 £25.00
Total Labor Cost £55,125 £1,74,969 £75,000 £1,75,000 £4,80,094
Total Cost £3,49,125 £6,96,694 £4,50,000 £6,95,000 £21,90,819
Net Profit £5,32,875 £10,84,806 £9,00,000 £14,05,000 £39,22,681
Profit per unit £362.50 £426.25 £600.00 £702.50

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Formula View:
Particulars Square Round Rectangular Elliptic TOTAL Max. Input
Maximum Demand 3500 3000 1500 2000
Maximum Demand 1470 2545 1500 2000
Price 600 700 900 1050
Total Sales =B6*B8 =C6*C8 =D6*D8 =E6*E8 =SUM(B9:E9)
Wood per unit 11 12
Total Wood Required =C11*C6 =E11*E6 =SUM(B12:E12) 52000
Cost per unit 15 =C13
Total Cost of Wood =C12*C13 =E12*E13 =SUM(B14:E14)
Metal per unit 7 8
Total Metal Required =B16*B6 =D16*D6 =SUM(B17:E17) 36000
Cost per unit 20 =B18
Total Cost for Metal =B17*B18 =D17*D18 =SUM(B19:E19)
Other Material p.u. 6 4 9 8
Total Other Materials Required =B21*B6 =C21*C6 =D21*D6 =E21*E6 =SUM(B22:E22) 48500
Cost per unit 10 =B23 =C23 =D23
Total Cost of Other Material =B22*B23 =C22*C23 =D22*D23 =E22*E23 =SUM(B24:E24)
Labour Hour p.u. 1.5 =2+(3/4) 2 3.5
Total Labor Hours =B26*B6 =C26*C6 =D26*D6 =E26*E6 =SUM(B27:E27) 20000
Labour Cost per hour 25 =B28 =C28 =D28
Total Labor Cost =B28*B27 =C28*C27 =D28*D27 =E28*E27 =SUM(B29:E29)
Total Cost =B14+B19+B24+B29 =C14+C19+C24+C29 =D14+D19+D24+D29 =E14+E19+E24+E29 =SUM(B31:E31)
Net Profit =B9-B31 =C9-C31 =D9-D31 =E9-E31 =SUM(B33:E33)
Profit per unit =B33/B6 =C33/C6 =D33/D6 =E33/E6
Scenario 2:
Normal View:
Particulars Square Round Rectangular Elliptic TOTAL Max. Input
Maximum Demand 3500 3000 1500 2000
Maximum Demand 1288 2818 1500 2000
Price £600.00 £700.00 £900.00 £1,050.00
Total Sales £7,72,800 £19,72,600 £13,50,000 £21,00,000 £61,95,400
Wood per unit 11 12
Total Wood Required 30998 24000 54998 55000
Cost per unit £15.00 £15.00
Total Cost of Wood £4,64,970 £3,60,000 £8,24,970
Metal per unit 7 8
Total Metal Required 9016 12000 21016 36000
Cost per unit £20.00 £20.00
Total Cost for Metal £1,80,320 £2,40,000 £4,20,320
Other Material p.u. 6 4 9 8
Total Other Materials Required 7728 11272 13500 16000 48500 48500
Cost per unit £10.00 £10.00 £10.00 £10.00
Total Cost of Other Material £77,280 £1,12,720 £1,35,000 £1,60,000 £4,85,000
Labour Hour p.u. 1.5 2.75 2 3.5
Total Labor Hours 1932 7749.5 3000 7000 19681.5 20000
Labour Cost per hour £25.00 £25.00 £25.00 £25.00
Total Labor Cost £48,300 £1,93,738 £75,000 £1,75,000 £4,92,038
Total Cost £3,05,900 £7,71,428 £4,50,000 £6,95,000 £22,22,328
Net Profit £4,66,900 £12,01,173 £9,00,000 £14,05,000 £39,73,073
Profit per unit £362.50 £426.25 £600.00 £702.50

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Formula View:
Particulars Square Round Rectangular Elliptic TOTAL Max. Input
Maximum Demand 3500 3000 1500 2000
Maximum Demand 1288 2818 1500 2000
Price 600 700 900 1050
Total Sales =B44*B46 =C44*C46 =D44*D46 =E44*E46 =SUM(B47:E47)
Wood per unit 11 12
Total Wood Required =C49*C44 =E49*E44 =SUM(B50:E50) 55000
Cost per unit 15 =C51
Total Cost of Wood =C50*C51 =E50*E51 =SUM(B52:E52)
Metal per unit 7 8
Total Metal Required =B54*B44 =D54*D44 =SUM(B55:E55) 36000
Cost per unit 20 =B56
Total Cost for Metal =B55*B56 =D55*D56 =SUM(B57:E57)
Other Material p.u. 6 4 9 8
Total Other Materials Required =B59*B44 =C59*C44 =D59*D44 =E59*E44 =SUM(B60:E60) 48500
Cost per unit 10 =B61 =C61 =D61
Total Cost of Other Material =B60*B61 =C60*C61 =D60*D61 =E60*E61 =SUM(B62:E62)
Labour Hour p.u. 1.5 =2+(3/4) 2 3.5
Total Labor Hours =B64*B44 =C64*C44 =D64*D44 =E64*E44 =SUM(B65:E65) 20000
Labour Cost per hour 25 =B66 =C66 =D66
Total Labor Cost =B66*B65 =C66*C65 =D66*D65 =E66*E65 =SUM(B67:E67)
Total Cost =B52+B57+B62+B67 =C52+C57+C62+C67 =D52+D57+D62+D67 =E52+E57+E62+E67 =SUM(B69:E69)
Net Profit =B47-B69 =C47-C69 =D47-D69 =E47-E69 =SUM(B71:E71)
Profit per unit =B71/B44 =C71/C44 =D71/D44 =E71/E44
Scenario 3:
Normal View:
Particulars Square Round Rectangular Elliptic TOTAL Max. Input
Maximum Demand 3500 3000 1500 2500
Maximum Demand 1166 2000 1500 2500
Price £600.00 £700.00 £900.00 £1,050.00
Total Sales £6,99,600 £14,00,000 £13,50,000 £26,25,000 £60,74,600
Wood per unit 11 12
Total Wood Required 22000 30000 52000 52000
Cost per unit £15.00 £15.00
Total Cost of Wood £3,30,000 £4,50,000 £7,80,000
Metal per unit 7 8
Total Metal Required 8162 12000 20162 36000
Cost per unit £20.00 £20.00
Total Cost for Metal £1,63,240 £2,40,000 £4,03,240
Other Material p.u. 6 4 9 8
Total Other Materials Required 6996 8000 13500 20000 48496 48500
Cost per unit £10.00 £10.00 £10.00 £10.00
Total Cost of Other Material £69,960 £80,000 £1,35,000 £2,00,000 £4,84,960
Labour Hour p.u. 1.5 2.75 2 3.5
Total Labor Hours 1749 5500 3000 8750 18999 20000
Labour Cost per hour £25.00 £25.00 £25.00 £25.00
Total Labor Cost £43,725 £1,37,500 £75,000 £2,18,750 £4,74,975
Total Cost £2,76,925 £5,47,500 £4,50,000 £8,68,750 £21,43,175
Net Profit £4,22,675 £8,52,500 £9,00,000 £17,56,250 £39,31,425
Less:Profit in General
Scenario £39,22,681
Maximum Adv.
Expenses £8,744
Profit per unit £362.50 £426.25 £600.00 £702.50

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Formula View:
Particulars Square Round Rectangular Elliptic TOTAL Max. Input
Maximum Demand 3500 3000 1500 2500
Maximum Demand 1166 2000 1500 2500
Price 600 700 900 1050
Total Sales =B82*B84 =C82*C84 =D82*D84 =E82*E84 =SUM(B85:E85)
Wood per unit 11 12
Total Wood Required =C87*C82 =E87*E82 =SUM(B88:E88) 52000
Cost per unit 15 =C89
Total Cost of Wood =C88*C89 =E88*E89 =SUM(B90:E90)
Metal per unit 7 8
Total Metal Required =B92*B82 =D92*D82 =SUM(B93:E93) 36000
Cost per unit 20 =B94
Total Cost for Metal =B93*B94 =D93*D94 =SUM(B95:E95)
Other Material p.u. 6 4 9 8
Total Other Materials Required =B97*B82 =C97*C82 =D97*D82 =E97*E82 =SUM(B98:E98) 48500
Cost per unit 10 =B99 =C99 =D99
Total Cost of Other Material =B98*B99 =C98*C99 =D98*D99 =E98*E99 =SUM(B100:E100)
Labour Hour p.u. 1.5 =2+(3/4) 2 3.5
Total Labor Hours =B102*B82 =C102*C82 =D102*D82 =E102*E82 =SUM(B103:E103) 20000
Labour Cost per hour 25 =B104 =C104 =D104
Total Labor Cost =B104*B103 =C104*C103 =D104*D103 =E104*E103 =SUM(B105:E105)
Total Cost =B90+B95+B100+B105 =C90+C95+C100+C105 =D90+D95+D100+D105 =E90+E95+E100+E105 =SUM(B107:E107)
Net Profit =B85-B107 =C85-C107 =D85-D107 =E85-E107 =SUM(B109:E109)
Less:Profit in General Scenario =F33
Maximum Adv. Expenses =F109-F110
Profit per unit =B109/B82 =C109/C82 =D109/D82 =E109/E82
Three different scenarios are considered where demand for products is different. The
total net profit earned by manufacturer of furniture is different in different scenarios. It can be
seen that in the first scenario, total amount of net profit generated stood at ₤ 3922681. Total
profit generated under scenario 2 from all different product line is computed at ₤ 3973073.
Total profit under scenario 3 stood at ₤ 3931425. Therefore, it can be seen from profit figures
that scenario 2 is generating higher profit as against other two scenarios. Moreover, higher
profit per unit of product is generated by elliptic product line.
Conclusion:
From the profit analysis of different products of table product line, it can be seen that
scenario two would be generating higher total profit. However, demand for product is at
average compared to other scenarios.

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Question 4:
Introduction:
The report is prepared to demonstrate different types of investment appraisal methods
along with advantages and disadvantages. Analysis of investment project undertaken by
Pierce Plc for development of two products is done by considering the techniques of capital
budgeting (Burns and Walker 2015). X and Y are two products that would be developed by
organization with the help of different technologies. Required rate of return of project is
8.75% and analysis of investment project is done by techniques such as payback period and
internal rate of return.
Requirement a)
Different types of investment appraisal method that can be used by Pierce limited are
net present value, internal rate of return, accounting rate of return and payback period.
Net present value (NPV)- Net present value is the difference between present value
of future cash flow and initial investment made by organization in the investment project. A
positive value of NPV indicates that project should be accepted and negative value should
lead to rejection of project along with zero value makes organization indifferent of project
(Hall and Sibanda 2016).
Advantages-
 Widely accepted measure and is considered the best measure
 NPV make use of concept of time value of money and it leads to correct capita
budgeting decisions conceptually.
Disadvantages-
 NPV only measures return size and does not consider project size

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 Computation of net present value requires an estimation of cost of capital.
Internal rate of return (IRR)- Internal rate of return is the discount rate at which the
net present value of project becomes zero. IRR is the well-known technique for evaluation of
project.
Advantages-
 IRR is simple to calculate and easier to interpret. When determining the feasibility of
two mutually exclusive projects, IRR is considered the most appropriate technique
(Rigopoulos 2015).
 For analyzing the investment of venture capital and private equity, IRR is widely used
technique.
Disadvantages-
 IRR ignores economies of scale and is not useful under specific conditions.
 Assumption involve under this method that earnings are reinvested at internal rate of
return is not viable.
Payback period- Payback period is the time taken for earning initial amount of
investment made in any project. Usage of table of cumulative net cash flow helps in the
computation of payback period (Scott 2015).
Advantages-
 Payback period is easier to calculate and simple to understand.
 A crude measure of liquidity is provided by payback period.
 Moreover, payback period provides investors information about risk of investment in
any particular project.
Disadvantages-

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 It does not take into consideration time value of money
 The risk associated with future cash flow is ignored under payback period (Rossi
2014).
 The fact whether investment would increase value of firm does not have any concrete
criteria.
Requirement b)
If the determination of investment project is based on rule that the investment project
will need to be payback within three year, then such project should be accepted that has either
lower payback period or 3 years payback period. From the table, it can be seen that payback
period for investment project of product X stood at 4.97 as against 2.67 for product Y.
Therefore, investment should be made in product Y as it has lower payback period that is
preferable.
Normal View:
Year
Actual Cash
Flow
Cumulative
Cash Flow
Actual Cash
Flow
Cumulative
Cash Flow
0 -5000 -5000 -5000 -5000
1 500 -4500 1000 -4000
2 750 -3750 2000 -2000
3 1100 -2650 3000 1000
4 1200 -1450 2000 3000
5 1500 50 1000 4000
6 1800 1850
7 2300 4150
8 3000 7150
9 1500 8650
10 750 9400
Internal Rate of
Return 20.51% 22.78%
Payback Period 4.97 2.67
Product X Product Y

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Formula View:
Year
Actual Cash Flow Cumulative Cash Flow Actual Cash Flow Cumulative Cash Flow
0 -5000 =B5 -5000 =D5
1 500 =C5+B6 1000 =E5+D6
2 750 =C6+B7 2000 =E6+D7
3 1100 =C7+B8 3000 =E7+D8
4 1200 =C8+B9 2000 =E8+D9
5 1500 =C9+B10 1000 =E9+D10
6 1800 =C10+B11
7 2300 =C11+B12
8 3000 =C12+B13
9 1500 =C13+B14
10 750 =C14+B15
Internal Rate of Return =IRR(B5:B15) =IRR(D5:D15)
Payback Period =A9+(-C9/B10) =A7+(-E7/D8)
Product X Product Y
Requirement c)
The two projects are analyzed by using techniques of internal rate of return and
payback period. Payback period for product X and product Y stood at 4.97 and 2.67 of which
lower payback period should be accepted. On other hand, internal rate of return for product X
is 20.51% and that of product Y is 22.78% respectively. It can be seen that both the project
should be accepted as per IRR criteria as the required rate of return of project is 8.75%.
However, considering both the factors, it would be appropriate to accept the investment
project in product Y.
Conclusion:
Several investment appraisal methods have been discussed regarding to its advantages
and disadvantages. It would be suitable for company to make use of payback period and
internal rate of return for determining project feasibility. From the analysis of above figures,
it can be seen that Peirce Plc should accept the project of investing product Y as against
product X. However, the acceptance of product Y investment project in relation to pre

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determined rule of payback period of project. Therefore, Peirce plc should do investment in
product Y using the method of investment appraisal.
Question 5:
Requirement a)
Predicted QM Exam Grade Predicted Accting. Exam Grade
Mean 49.28333333 Mean 52.93333333
Standard Error 0.144711655 Standard Error 1.321652314
Median 49.279755 Median 53.70655273
Mode 49.279755 Mode 55.09834765
Standard Deviation 0.792618378 Standard Deviation 7.238987853
Sample Variance 0.628243893 Sample Variance 52.40294514
Kurtosis -0.792871378 Kurtosis -1.223323862
Skewness -0.443291206 Skewness -0.009878531
Range 2.576398406 Range 21.80478708
Minimum 47.8305309 Minimum 42.10826173
Maximum 50.4069293 Maximum 63.91304882
Sum 1478.5 Sum 1588
Count 30 Count 30
Confidence Level(95.0%) 0.295968566 Confidence Level(95.0%) 2.703082488
The distribution of the expected grades for both the quantitative method and
Accounting exam indicates that average estimated grades in accounting exam is greater than
average estimated marks in QM exam. The deviation and scatterness in terms of variance and
standard deviation is greater for accounting exam than QM exam. The estimated scores are
predicted with a high range in case of accounting rather than QM.

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
0
10
20
30
40
50
60
70
The distribution of estimated grades of QM and accounting
Predicted QM Exam Grade Predicted Accting. Exam Grade
Students
Estimated Exam grade
Requirement b)
The average expected marks for QM and Accounting are respectively = 49.283 and 52.933.
The 95% confidence intervals for QM and Acoounting estimated marks are respectively =
0.295968566401821 and 2.70308248827601.
The 95% upper confidence limit for QM average score = (49.283+0.296) = 49.58 and 95%
lower confidence limit for QM average score = (49.283-0.296) = 48.99
The 95% upper confidence limit for Accntg. Average score = (52.933+2.703) = 55.636 and
95% lower confidence limit for Accntg. Average score = (52.933-2.703) = 50.23

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Requirement c)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
0
10
20
30
40
50
60
70
80
90
100
The comparative distribution of QM exam grade and Predicted exam grade
QM Exam Grade Predicted QM Exam Grade
Students
QM exam grade and Predicted QM exam
grade
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
0
20
40
60
80
100
120
The comparative distribution of acoounting exam grade and predicted
accounting exam grade
Accting. Exam Grade Predicted Accting. Exam Grade
Students
Accounting Exam grade and Predicted
Accounting Exam grade
The actual exam score of QM do not show a pattern similar to the estimated score.
One of the main reason is that the estimated scores are calculated as per the linear regression
model of QM scores. The relationship is insignificant as not only the study hours but also
type of questions and exam (numerical, essay-type, multiple choice) is influencing heavily on

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the overall grade. The actual exam score of Accounting also do not show a matching pattern
with estimated score similar as QM score. The reason might be similar as QM for the
dependence of type of questions and exam. Note that, the value of r-sqaure of QM model =
0.07% and the value of r-square of Accounting model = 5.8%.

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References list:
Burns, R. and Walker, J., 2015. Capital budgeting surveys: the future is now.
Geisler, E. and Wickramasinghe, N., 2015. Principles of knowledge management: Theory,
practice, and cases. Routledge.
Götze, U., Northcott, D. and Schuster, P., 2015. Capital Budgeting and Investment Decisions.
In Investment Appraisal(pp. 3-26). Springer, Berlin, Heidelberg.
Hall, J.H. and Sibanda, T., 2016. Capital Budgeting Practices: An Empirical Study of Listed
Small en Medium Enterprises. Corporate Ownership & Control, p.200.
Mbabazize, P.M. and Daniel, T., 2014. Capital Budgeting Practices In Developing Countries:
A Case Of Rwanda. Research journali’s Journal of Finance vol. 2 No 3 Hal. 34, 38.
Rigopoulos, G., 2015. A review on Real Options utilization in Capital Budgeting
practice. International Journal of Information, Business and Management, 7(2), p.1.
Rossi, M., 2014. Capital budgeting in Europe: confronting theory with practice. International
Journal of Managerial and Financial Accounting, 6(4), pp.341-356.
Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.
Titman, S., Keown, A.J. and Martin, J.D., 2017. Financial management: Principles and
applications. Pearson.