Investment Appraisal for Software and Launderette Projects at XYZ Plc

This report evaluates the viability of two projects, software and launderette, for XYZ Plc, a budget hotel chain, using investment appraisal techniques. The analysis employs the payback period and net present value (NPV) methods to assess the financial attractiveness of each project. The payback method determines the time required to recoup the initial investment, while the NPV method calculates the present value of future cash flows, considering an 11% discount rate. The report finds that both projects have the same payback period, but the launderette project offers a higher NPV. The report also discusses monetary factors like cost, risk, and returns, and non-financial factors such as human resource availability, customer satisfaction, and maintenance costs. The conclusion recommends investing in the launderette project for better profitability and overall success.

Business Decision Making

TABLE OF CONTENTS
Evaluating the viability of project using investment appraisal tools and techniques..................3
REFERENCES................................................................................................................................8

Evaluating the viability of project using investment appraisal tools and techniques
Business decision making implies for the process of selecting best option out of several
alternatives available for the organization. Thus, manager is required to analyze and evaluate
project on the basis of cost as well as profitability aspect. This project is based on XYZ Plc, a
budget hotel chain, which provides customers or tourists with accommodation services. Due to
the lack of having enough resources firm is outsourcing software and launderette related
services. For building and sustaining competitive edge over others manager of XYZ Plc is
planning to invest money in software and launderette project. In this regard, report will develop
understanding about how investment appraisal techniques can be used for the purpose of
decision making.
On the basis of given case scenario, XYZ plc is outsourcing services pertaining to
software and launderette due to lack of having enough resources. Thus, for fulfilling
requirements pertaining to such aspects strategic manager of hotel chain is focusing on
identifying and selection of best investment option or proposal. As per the case, business unit has
two investment proposal software (A) and launderette (B) with varied initial investment. Hence,
by applying investment appraisal tools manager of XYZ plc can assess or evaluate its
attractiveness. This fundamental analysis is highly prominent which assists in identifying long
term trends or patterns. Hence, there are several method such as payback, net present value,
average and internal rate of return which entails whether proposed investment is aligned with
organizational goals and objectives or not (Harris, 2017).
In order to identify the attractiveness of the concerned projects such as A and B payback
as well as net present value method has been selected. Moreover, both these methods help XYZ
in analyzing project in a quantifiable manner. In other words, such methods provide deeper
insight about the profitability associated with the project being evaluated (Alkaraan, 2017).
Payback method exhibits the time that particular project will take for generating enough
cash flows in order to cover initial investment. Thus, manager of XYZ Plc can use this method
for the purpose of initial screening with regards to measuring liquidity and profitability aspect.
This technique is highly simple and easy to understand. Further, NPV method shows profit that
firm will generate from specific investment project after specific time period (Investment

appraisal techniques, 2020). Thus, with the motive to assess profitability and determining
appropriate NPV all the cash inflows and outflows are discounted referring 11% as PV factor.
Assessment of net present value (NPV)
Year Project A –
Software Project
Discounting factor @
11%
Present value
of cash flows
1 28000 0.901 25225
2 32000 0.812 25972
3 35000 0.731 25592
4 55000 0.659 36230
5 78000 0.593 46289
Discounted cash flows 159308
Less: initial investment 100000
NPV 59308
Year Project B – Laundrette
Project
PV factor @
11%
Present value of
cash flows
1 31000 0.901 27928
2 38000 0.812 30842
3 43000 0.731 31441
4 64000 0.659 42159
5 89000 0.593 52817

Sum of discounted values 185187
Less: initial investment 120000
NPV 65187
Assessment of Payback period
Year Project A – Software
Project
Cumulative figures
1 28000 28000
2 32000 60000
3 35000 95000
4 55000 150000
5 78000 228000
3.1 years
Payback period 0.1
Year Project B – Laundrette
Project
Cumulative cash flows
1 31000 31000
2 38000 69000
3 43000 112000

4 64000 176000
5 89000 265000
3.1 years
Payback period 0.1
From evaluation, it has identified that in the case of both projects namely software and
launderette XYZ Plc will recoup initial investment within 3 years and 1 month. On the basis of
payback method, project with less recovery period must be selected. However, in the given
situation there is tie between both the projects. However, as per NPV method, outcomes of both
the projects differ significantly. Moreover, in launderette project, manager of hotel chain will get
higher returns such as £65187 significantly. On the other hand, by investing money in software
project returns of only £59308 will be generated. In accordance with standard criteria project
which exceed initial investment at higher level considered as good. By taking into consideration
all such aspects, it can be presented that project B will aid in organization’s profitability and
thereby overall success to a great extent.
Monetary and non-monetary factors for decision making
Monetary factors
Usually, company takes investment decision with the motive to fulfill objective
pertaining to generating economic profit. Thus, cost, risk and returns are the main financial
factors that manager need to keep in mind while evaluating proposed investment. In other words,
manager should focus on assessing the extent to which proposed investment will offer desired
level of profit at lower cost and risk level (Investment Appraisal-8 non-financial factors that
every accountants and managers should consider, 2020). In addition to this, business unit also
needs fund for managing daily activities. Hence, while evaluating opportunities firm should
consider working capital requirement and associated management.
Non-financial factors
Along with monetary factors, non-financial aspects also significantly impact business
decision making. Moreover, there are several factors which in turn equally important in line with

monetary aspects such as human resource availability, customer satisfaction, technical
experience, servicing arrangements as well as flexibility and adaptability. On the basis of this,
manager of XYZ should assess whether they have competent workforce for dealing with new
technical project or not. Further, manager should consider that whether concerned proposal
would help in satisfying the needs, wants and customers. Moreover, in the competitive business
environment firm can gain competitive edge over others only when they have satisfied and loyal
customer base. Along with this, manager of hotel chain should also evaluate maintenance cost
associated with investment project. Thus, by considering these manager can make selection of
best project that contributes in organizational growth.
In the conclusion to this report, it has been concluded by investing funds in project B
manager can attain goals. It can be summarized from the evaluation that NPV of launderette
project is positive and higher over others. Thus, through investing fund in this project manager of
XYZ plc can ensure availability of services.

REFERENCES
Books and Journals
Alkaraan, F., 2017. Strategic investment appraisal: multidisciplinary perspectives. Advances in
Mergers and Acquisitions. p.67.
Harris, E., 2017. Strategic project risk appraisal and management. Routledge.
Online
Investment appraisal techniques. 2020. Online. Available through: <
https://efinancemanagement.com/investment-decisions/investment-appraisal-techniques>.
Investment Appraisal-8 non-financial factors that every accountants and managers should
consider. 2020. Online. Available through: <https://accountantnextdoor.com/investment-
appraisal-8-non-financial-factors-that-every-accountants-and-managers-should-consider/>.