Analysis of Business Finance for International Investment Decisions

This report provides a comprehensive analysis of business finance, focusing on key areas such as capital investment appraisal, sources of finance, flexible budgeting, and break-even analysis. The capital investment appraisal section includes detailed calculations for payback period, accounting rate of return (ARR), net present value (NPV), and internal rate of return (IRR) across different countries (Ethiopia, Morocco, and Bulgaria). The report evaluates the advantages and disadvantages of each appraisal method and recommends investment strategies based on the calculations. The section on sources of finance differentiates between ordinary shares, preference shares, retained profit, and debentures, followed by a comparison of leasing, hire purchasing, and bank loans. The report also includes information about flexible budgets, variance analysis, and break-even analysis, providing a thorough understanding of financial management for international businesses. The content is based on an international company that produces fashion clothes for different retailers of UK and USA, and includes references to relevant financial concepts and academic sources.

BUSINESS FINANCE

Contents
INTRODUCTION.......................................................................................................................................3
MAIN BODY..............................................................................................................................................3
1. Capital investment appraisal:...........................................................................................................3
2. Source of finance:..........................................................................................................................14
3. Flexible budget:.............................................................................................................................17
4. Break Even Analysis......................................................................................................................20
CONCLUSION.........................................................................................................................................22
REFERENCES..........................................................................................................................................24

INTRODUCTION
Corporate finance requires the assets and investments invested in the business. The
foundation of a company is finance. Acquisition of land, commodities, raw materials and the
other business activity flows are financial requirements (Ylhäinen, 2017). This is essential to
business entities to manage their financial resources in an effective manner so that total
utilization can become possible. The project report is based on an international company that
produces fashion cloths for different retailers of UK and USA. The project report consists
information about various tasks. Such as initial part of report is based on capital investment
appraisal under which different calculations are done as per methods. In the second task of report
different financial terms explained like bank overdraft, factoring, lease and many more. The third
part of report consists information about flexible budget and variance. While the end part of
report covers information about breakeven point and its calculations.
MAIN BODY
1. Capital investment appraisal:
Task 1 calculation:
 Payback period
Country- Ethiopia
Investment= 500000
Year Cash flow
1 160000
2 160000
3 160000
4 160000
5 160000

Payback period= Initial investment/cash flow
= 500000/160000
= 3.125 Years
Country- Morocco
Investment= 500000
Year Cash flow Cumulative
cash flow
1 190000 190000
2 180000 370000
3 170000 540000
4 160000 700000
5 150000 850000
Payback period= Year before recovery + amount to be recover/next year cash
flow
= 2+130000/170000
=2.76 years
Country- Bulgaria
Investment= 500000
Year Cash flow Cumulative
cash flow
1 50000 50000
2 100000 150000
3 150000 300000
4 250000 550000

5 350000 900000
Payback period= 3+200000/250000
= 3.08 years
 Accounting rate of return:
Country- Ethiopia
Investment= 500000
Year Cash flow
1 160000
2 160000
3 160000
4 160000
5 160000
ARR= Average annual profit / investment*100
= 160000/500000*100
= 32%
Country- Morocco
Investment= 500000
Year Cash flow
1 190000
2 180000
3 170000
4 160000

5 150000
Total profit= 850000
Average profit= 850000/5
= 170000
ARR= 170000/500000*100
= 34%
Country- Bulgaria
Investment= 500000
Year Cash flow
1 50000
2 100000
3 150000
4 250000
5 350000
Total profit= 900000
Average profit= 900000/5
= 180000
ARR= 180000/500000*100
= 36%

 Net present value:
Cost of capital= 15%
Country- Ethiopia
Investment= 500000
Yea
r
Cash
flow PV
factor
Discounte
d cash
flow
1 16000
0 0.8696 139136
2 16000
0 0.7561 120976
3 16000
0 0.6575 105200
4 16000
0 0.5718 91488
5 16000
0 0.4972 79552
536352
NPV= Discounted cash flow-initial investment
= 536352-500000
= 36352
Country- Morocco
Investment= 500000
Year Cash
flow PV
factor
Discounte
d cash
flow
1 19000
0 0.8696 165224
2 18000
0 0.7561 136098

3 17000
0 0.6575 111775
4 16000
0 0.5718 91488
5 15000
0 0.4972 74580
579165
NPV= 579165-500000
= 79165
Country- Bulgaria
Investment= 500000
Year Cash
flow PV
factor
Discounte
d cash
flow
1 50000 0.8696 43480
2 10000
0 0.7561 75610
3 15000
0 0.6575 98625
4 25000
0 0.5718 142950
5 35000
0 0.4972 174020
534685
NPV= 534685-500000
= 34685
 Internal rate of return

IRR = Lower Discounted Rate + PV of Lower Discounted Rate – Initial
investment / PV of High Discounted Rate*(HDR – LDR)
Country- Ethiopia
Investment= 500000
Lower discount rate- 15%
Yea
r
Cash
flow PV
factor
Discounte
d cash
flow
1 16000
0 0.8696 139136
2 16000
0 0.7561 120976
3 16000
0 0.6575 105200
4 16000
0 0.5718 91488
5 16000
0 0.4972 79552
536352
Higher discounting rate- 20%
Yea
r
Cash
flow PV
factor
Discounte
d cash
flow
1 16000
0 0.8333 133328
2 16000
0 0.6944 111104
3 16000
0 0.5787 92592
4 16000
0 0.4823 77168
5 16000 0.4019 64304

0
478496
IRR= 15+536352-500000/478496*(20-15)
= 15+36352/478496*5
= 15+0.38
= 15.38
Country- Morocco
Investment= 500000
PV at 15%
Year Cash
flow PV
factor
Discounte
d cash
flow
1 19000
0 0.8696 165224
2 18000
0 0.7561 136098
3 17000
0 0.6575 111775
4 16000
0 0.5718 91488
5 15000
0 0.4972 74580
579165
PV at 20%

Year Cash
flow PV
factor
Discounte
d cash
flow
1 19000
0 0.8333 158327
2 18000
0 0.6944 124992
3 17000
0 0.5787 98379
4 16000
0 0.4823 77168
5 15000
0 0.4019 60285
519151
IRR= 15+579165-500000/519151*5
= 15+79165/500000*5
= 15.79%
Country- Bulgaria
Investment= 500000
PV at 15%
Year Cash
flow PV
factor
Discounte
d cash
flow
1 50000 0.8696 43480
2 10000
0 0.7561 75610
3 15000
0 0.6575 98625

4 25000
0 0.5718 142950
5 35000
0 0.4972 174020
534685
PV at 20%
Year Cash
flow PV
factor
Discounte
d cash
flow
1 50000 0.8333 41665
2 10000
0 0.6944 69440
3 15000
0 0.5787 86805
4 25000
0 0.4823 120575
5 35000
0 0.4019 140665
459150
IRR= 15+534685-500000/459150*5
= 15+34685/459150*5
= 15.34%
Task 2 – Briefly explain the advantages and disadvantages of each method.
Payback period- It determines additional expenditures and allows the user to accept or
choose the right alternative. It is the approach of capital budgeting (Bendell and Doyle, 2017).
The payback term applies to the duration of the customer's checks. The business gains from a