Comprehensive Investment Analysis Report: Two Opportunities

This report presents a detailed financial analysis of two investment opportunities: investing in a new restaurant and developing a Gold Coast business. The analysis of the restaurant investment includes a sales budget, labor budget, and cash budget, assessing its profitability over four months. The Gold Coast investment is evaluated using Net Present Value (NPV), Accounting Rate of Return (ARR), and payback period methods. The report compares both opportunities, highlighting the positive aspects of each investment, and provides insights into potential risks associated with each project, such as market fluctuations and cost increases. The findings suggest that both investments are beneficial, with the restaurant showing positive cash flow and the Gold Coast project demonstrating a positive NPV and attractive ARR and payback period, ultimately aiding investors in making informed decisions.

1.0 INTRODUCTION
Purpose
In the present case scenario, there are two kinds of the investments provided which have
to analyse for their viability. Further, key purpose of the present report is to evaluate both the
given investment opportunities and identify that whether these will be profitable or not. Further,
it helps to take effective decisions to Mark and Paul for making investment in new restaurant or
gold coast.
Scope
Scope of the project is analysing the investments and on the basis of that taking profitable
decisions. Apart from this, it will support to Mark and Paul in order to make comparison among
two or more investments in an appropriate direction.
Limitations
Basic drawback of the present project is related to the time-frame where in order to
perform calculation of budgets more time required. In addition to this, at the time of computing
net present value of the project, it is not necessary that discounting factor will remain same. If
market conditions change then Mark and Paul cannot generate computed returns on the
investment made at initial.
2.0 Nature and Scope of Investments
The action which is taken by an individual or entity in order to invest sum of money for
the motive of profit earning is known as an investment. There are wide range of aspects and
alternatives available in the market for making effective and profitable investment. Further,
scope as well as nature of this aspect are stated below:
 The investment sometimes provide higher return and sometimes gives negative return as
well (Upton and et.al., 2015).
 It helps to enhance economic conditions of the individual in case higher profit or return
generated.
 In order to create broad understanding about different decisions rules to the investment it
is the best approach.

 Another scope and nature of this is for assessing and knowing about the better and bad
investments decisions rules.
 In order to determine different categories about the decisions rules with respect to
investment.
3.0 Investment Opportunity One Budgets
In the first investment opportunity, a new restaurant is opened and for which some
budgeted information provided. On the basis of the given data basically three budget statements
are prepared which show that whether proposed investment will profitable for Mark and Paul or
not (Bogsnes, 2016). The budgets are like cash, sales and labour which are presented below:
3.1 Sales Budget
Sales Budget
Month June July August September
Sales Unit 20000 18000 18000 22000
Price of each
unit 45 45 45 45
Selling price
of meal 900000 810000 810000 990000
Selling unit of
drinks 450000 405000 405000 495000
Price of each
unit 6 6 6 6
Total selling
price of drinks 2700000 2430000 2430000 2970000
Total sales 3600000 3240000 3240000 3960000
3.2 Labour Budget
Labour Budget
Particulars /
Month June July August September
Working hours 6 6 6 6
Cost per hour 23 23 23 23
Number of workers 3 3 3 3
Days of working 26 26 26 26

Overall
expenditures 10764 10764 10764 10764
3.3 Cash Budget
Cash Budget
Month June July August Sep
Bank Account 80000 0 0 0
Cash incomes
Sales revenues 3600000 1134000 1134000 6930000
Total cash receipts
or inflows 1260000 1260000 1260000 1260000
Cash outflows
Machinery 0 110000 0 0
Furniture 0 30000 0 0
Vehicle 0 43000 0 0
Utensils 0 18000 0 0
Credit Produce 0 0 40000 0
Credit Drinks 0 2000 9000 9000
Labour expense 0 10764 0 0
Owner drawing 0 10000 10000 10000
overhead cost 5000 5000 5000 5000
Total cash
outflows 5000 228764 64000 24000
Cash balance at
the end of month $1,255,000 $905,236 $1,070,000 $6,906,000
3.4 Overview and Analysis of Budgets
On the basis of the above all the budgets it has been analysed that, new restaurant
investment will provide better return. When looking at the sales budget statement then it has
been found that, total revenue is increasing on consistent basis from the fist to fourth month
(Sattari and et.al., 2016). At the initial month total sales will be worth of $1260000 which
reduces in next months and reached up to $1134000. On the other hand side, at the end of last
month revenue is at the highest position which is worth of $6930000. After considering such
information it can be stated that, new restaurant will provide benefits at the end of fourth month.

When looking at the cash budget then it can be ascertained that, at the end of month of
June net cash balance will be worth of $1255000 which is positive for the investment. In the next
month i.e. July it will slightly decrease and reached at worth of $905236. However, cash balance
at the end of September will show that the proposed restaurant will generate higher profit
(Harris, 2017). Expected cash balance in the month of September will be worth of $6906000
which is profitable for the Mark and Paul when they make investments.
According to the labour budget, total expenditures in all the four month will remain
constant which are worth of $10764. Although, level of production changes or fluctuates within
the cited period of four months or one quarter.
When visualising to the all budget statements then it can be criticised that, investment in
new restaurant will be profitable for the investors.
3.5 Practical issues Associated with the Investment
Apart from having profitable investment, it has some issues and risks which will create
negative impact up to the certain level. Major issue associated with the investment in new
restaurant is regarding to the market situations. For instance: in the food industry if demand of
proposed restaurant's products and services will decline then affect to the sales, cash and profit at
the end of year. Another risk is regarding to the cost enhancing in the working environment of
upcoming restaurant (Maltais-Landry and et.al., 2016). According to this, if prices of raw
materials will increase then cost of production and service will be also influenced. On the other
side, such both the issues associated with projected investment are uncontrollable by the
investors.

4.0 Investment Opportunity Two Ratio Analysis
The second investment opportunity available is developing a new business i.e. Gold
Coast where other venture-capital investors are also involved. In order to assess viability of the
project or investment there are some capital budgeting tools and methods are undertaken. Those
techniques considered in the present report are like NPV, ARR and payback period (Baum and
Crosby, 2014) which are stated below:
4.1 Net Present Value
Years Cash inflows
PV
factor
@
12% Discounted cash inflow
1 100000 100000 0.893 89285.71
2 230000 330000 0.797 183354.59
3 190000 520000 0.712 135238.25
4 140000 660000 0.636 88972.53
TDCF 496851.08
Initial investment 390000
NPV 106851.08
4.2 Accounting rate of return
Years Cash inflows
1 100000
2 230000
3 190000
4 140000
Average 165000
ARR 42.3%
4.3 Payback period
Years Cash inflows

1 100000
2 230000
3 190000
4 140000
Payback
period 2.3 years
On the basis of the above stated calculations it has been analysed that, the cited
investment opportunity will be profitable for investors up to the better level. From the NPV tool
it has been derived that, investment in Gold Coast will provide return at the end of four years is
worth of $106851. As the value of NPV is higher in the investment then beneficial for the
investor. Apart from this, when considering to the ARR method then it will provide average
return of 42% which is also effective up to the certain extent. On an investment when value or
percentage of ARR is high then taken into consideration for putting money in that alternative
(Almarri and Blackwell, 2014). The tool which reflects that amount of initial investment will be
recovered within how many years is identified as payback-period. Lower the value or number of
years are better and profitable for the investment (Payback Period, 2013). In the present case
scenario, investment in Gold Coast will be recovered within 2.3 years or 2 years and 3 months
only. On the basis of this it has been clarified that, investing money in the for developing
business will be beneficial for the investors.
5.0 Comparison of Investment Opportunities
When looking at both the opportunities of making investment i.e. in new restaurant and
developing business (Gold Coast) both are profitable and beneficial for the investors up to the
greater extent. According to the budgets it has been discussed that, expenses on labour will
remain constant over the period of total four months even output level fluctuates. Further, net
cash balance and revenue both the aspects in new restaurant are at the profitable and positive
conditions. Hence, it can be said that the investor should make investment in the new restaurant
for earning returns in proper direction. When comparing it with the second investment option
then it can be found that, another option also has the positive net present value at the end of four
years. In addition to this, accounting rate of return is also at the 25% which reflects that on an

average return on investment within four years will be at the better position. Moreover, both the
investment options are highly beneficial for the Mark and Paul.

6.0 References
Books and Journals
Baum, A. E. and Crosby, N., 2014. Property investment appraisal. John Wiley & Sons.
Almarri, K. and Blackwell, P., 2014. Improving risk sharing and investment appraisal for PPP
procurement success in large green projects. Procedia-Social and Behavioral Sciences.
119. pp. 847-856.
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.
Harris, E., 2017. Strategic project risk appraisal and management. Routledge.
Maltais-Landry, G. and et.al., 2016. Higher flexibility in input N: P ratios results in more
balanced phosphorus budgets in two long-term experimental agroecosystems. Agriculture,
Ecosystems & Environment. 223. pp. 197-210.
Sattari, S. Z. and et.al., 2016. Negative global phosphorus budgets challenge sustainable
intensification of grasslands. Nature communications. 7. p.
Bogsnes, B., 2016. Implementing beyond budgeting: unlocking the performance potential. John
Wiley & Sons.
Online
Payback Period, 2013. [Online]. Available through:
<http://accountingexplained.com/managerial/capital-budgeting/payback-period>
[Accessed on 27th September 2017].