Investment Appraisal for DuoLever Limited: Financial Report Analysis

This report analyzes the investment decisions of DuoLever Limited, a personal care product company facing environmental concerns due to its plastic packaging. The report assesses two investment options: soft plastic recycling research and development with pilot testing, and the use of a patented method license. It provides a detailed financial analysis, including NPV calculations and cash flow assessments for both options over a five-year period. The analysis concludes that the second option is the most suitable for the company. The report also includes an introduction, a memo, and recommendations. The report highlights the importance of investment appraisal in making informed financial decisions, providing insights into the viability of each option and its potential impact on the company's profitability and environmental responsibility. The report is well-structured and provides a clear recommendation for DuoLever Limited.

Finance

TABLE OF CONTENTS
INTRODUCTION................................................................................................................................3
MAIN BODY.......................................................................................................................................3
Assessing the viability of the two options available for DuoLever Limited...................................3
MEMO..................................................................................................................................................4
RECOMMENDATIONS .....................................................................................................................5
CONCLUSION....................................................................................................................................5

REFERENCES.....................................................................................................................................6
INTRODUCTION
Investment related decision making is considered as one of the most important process which should consider each financial information of the subject
matter accordingly. There are many types of Investment appraisal available for companies for seeking the competitive advantage n the market. The
present report is based on DuoLever Limited which is dealing in the industry of personal care products. All the goods, products of DuoLever company

are sold in plastic pack which has created environmental impact. The report will discuss about the soft plastic recycling research, development and
pilot testing which will be adopted and invested in by the DuoLever Limited. At last, report will discuss about license use of patented method
developed by the company. Also, suggestion regarding the best suitable option along with recommendations will be made in the report.
MAIN BODY
Assessing the viability of the two options available for DuoLever Limited.
Option 1
Computation of cash inflow
Yea
r
sales
revenu
e
Variable
packagin
g cost
selling and
administratio
n expenses
Depreciatio
n EBIT
less
interes
t EBT
Less
: tax
@
25%
EBIT
- tax
Add:
depreciatio
n
Cash
inflow
1 200 16.5 2 4 177.50 1.4
176.
1
44.0
3
132.0
8 4
136.0
8
2 208 16.995 2 4 185.01 1.4
183.
6
45.9
0
137.7
0 4
141.7
0
3 216.32 17.5049 2 4 192.82 1.4
191.
4
47.8
5
143.5
6 4
147.5
6
4 224.973 18.03 2 4 200.94 1.4
199.
5
49.8
9
149.6
6 4
153.6
6
5 233.972 18.5709 2 4 209.40 1.4
208.
0
52.0
0
156.0
0 4
160.0
0
Depreciation Calculation:
Particulars Figures

Plant and equipment cost $20
millions
Salvage Value 0
Life 5 years
Depreciation = (Cost – Salvage
Value)/ Life
$4 millions
NPV assessment
Year Cash inflow PV factor @ 8% Present value of cash flows
1 136.08 0.92593 125.995
2 141.704 0.85734 121.488
3 147.561 0.79383 117.139
4 153.657 0.73503 112.943
5 160.001 0.68058 108.894

Sum of discounted cash flows 586.459
Less: initial investment 20
NPV 566.459
Option 2
Year
Sales
revenue
($m)
Selling and
administration
expenses ($m)
Variable
packaging
cost ($m)
Net cash
flow ($m)
PV factor
@ 8%
Present
value of
cash flows
1 204 1 16.5 186.5 0.926 172.69
2 212 1 17.00 194.2 0.857 166.47
3 221 1 17.50 202.1 0.794 160.47
4 229 1 18.03 210.4 0.735 154.68
5 239 1 18.571 219.1 0.681 149.10
Total 803.40
MEMO
To
The Manager,
DuoLever Limited

The company is engaged in the business of personal care products specializing in skin and hair care products which are sold in the market in either a
plastic packaging form or in a multi layer sachets or pouches. Because of using plastic packaging by DuoLever Limited, it has created a negative
impact in the environment in form of blocking of landfills, ocean and rivers. As per the estimation made approximately 8 million metrics tons of
plastic have been entered in the year 2010 which is predicted to be doubled till the ending 2025. For resolving this problem, company has made an
investment of approximately $50 million in the soft plastic research, development and pilot testing.
For the company, Option 2 is more suitable and better to be adopted which is related to licensing use of the patented recycling method to Clean World
Ltd. By licensing the use of patented recycling method to Clean World Ltd, the company is able to get recycled plastic after completion of all the
production and recycling related process. Also, the net present value calculated for both option depicts the same thing that going with option 2 will be
more viable and profitable for the company because the net present value for both option 2 is more as compared to option 1 (Hicks, 2017).
Clean World Ltd has agreed with the terms and condition related to the use of recycling method for next 5 year and whatever product is produced will
be supplied to DuoLever Limited at the same cost at which the existing virgin plastic supply has been forecasted by DuoLever Limited. This will give
a competitive advantage on part of DuoLever Limited as it will get recycled plastic at no cost and which in turn increases the profit margin of the
company. Also, another benefit of using this option is that in this DuoLever Limited has to make no initial outlay for plant and equipment and
packaging materials supply cost for next 5 years will be locked in as well. If company will adopt for option 1 it will have to incur $2 million annually
for selling, administration and general expenses on the project whereas with option 2 it will be minimized to $1 million only.
RECOMMENDATIONS
It will be recommend to DuoLever Limited to invest in Option 2 as it will help the company in minimizing the selling, administrative and general
expenses on the project by $1 million and also no additional production administration cost will be incurred on behalf of DuoLever Limited. By
handing over the license use of the patented recycling method to Clean World Ltd, the company will be able to lock in all the cost expenses related to
packaging materials supply costs for coming next 5 years. Also, Clean World Ltd will produce recycle plastic by adopting the methodology defined by
DuoLever and handover all the output produced exclusively to it at the same cost as estimated. This will lead to maximisation of DuoLever profit and

brings improvement in the environmental impact.
CONCLUSION
From the above report it has been concluded that DuoLever Limited is dealing in personal care products packaged in plastic container which has
increased plastic wastage in the environment. This has resulted in the investment of around $50 million in the soft plastic recycling research,
development and pilot testing by the company. Also, discussion has been made related to assessing the most viable option for DuoLever. Option 2 is
considered as most suitable option the company as it is increasing the profit margin, reducing the packaging materials supplying cost for the company
for next 5 years and also doesn't require any initial outlay for plant and equipment.

REFERENCES
Books and Journals
Hicks, C. L., 2017, July. MODERN PROJECT INVESTMENT APPRAISAL: RETURN TO SIMPLICITY. In Process Optimisation: A Three-Day
Symposium Organised by the Midlands Branch of the Institution of Chemical Engineers and Held at the University of Nottingham, 7–9 April
1987 (No. 61, p. 53). Elsevier.
Upton, J. and et.al., 2015. Investment appraisal of technology innovations on dairy farm electricity consumption. Journal of dairy science. 98(2).
pp.898-909.
Warren, L. and Seal, W., 2018. Using investment appraisal models in strategic negotiation: The cultural political economy of electricity
generation. Accounting, Organizations and Society. 70. pp.16-32.