Business Finance Report: Investment, Funding, and Cost Analysis

This business finance report provides a detailed analysis of investment proposals for K plc, utilizing payback period and net present value methods to rank and select projects. It explores alternative funding methods, including bank loans, government grants, and business investors, emphasizing the link between financing and investment decisions in acquiring an unlisted company. The report includes a comprehensive variance analysis of variable cost elements, suggesting possible explanations for identified variances. Furthermore, it compares centralized and decentralized procurement, discussing their respective benefits. The analysis aims to guide K plc in making informed financial decisions and optimizing its operational strategies, offering insights into both quantitative and qualitative factors influencing investment choices. Desklib provides access to similar solved assignments and study tools for students.

Business Finance

Contents
INTRODUCTION...........................................................................................................................................3
PART A.........................................................................................................................................................3
Analyse the investment proposals...........................................................................................................3
c) Rank the projects on the basis of Pay back as well as Net present value...........................................12
d) Select the project when all the offers are mutually exclusive...........................................................13
e) Explain the strength and weaknesses of payback period and net present value method................13
f) Discuss about the qualitative factors which will help the directors in making a final payment.........13
PART B.......................................................................................................................................................14
a) Suggest 3 alternative methods of funding.......................................................................................14
b) Create a link between the financing and investment decision in relation to acquisition of unlisted
company................................................................................................................................................15
PART C.......................................................................................................................................................15
a) Prepare a full variance analysis statement of variable cost elements...............................................15
b) Suggest the possible explanations for variances identified...............................................................17
PART D.......................................................................................................................................................18
Compare the centralised and decentralised procurement along with discussing about their benefits.
...............................................................................................................................................................18
CONCLUSION.............................................................................................................................................19
REFERENCES..............................................................................................................................................20

INTRODUCTION
A business report is a compilation of facts on a company's operations. This analysis is being
created in order to determine the best strategy for the organisation. It contains an evaluation of
two initiatives and spending, and even an examination of the actual results. The firm selected for
the study is K plc. It is a commercial entity (Jackson and et.al., 2020). The study is divided into
four components. Its first section evaluates the various references to a procedure and gives a
recommendation for the best performance. The second section tells the organisation about the
many financial apps available to it and the best one to utilize for purchasing. The third evaluates
the firm's success by comparing predicted statistics to published results. The fourth section
examines and analyzes the advantages of decentralized vs centralized purchasing.
PART A
Analyse the investment proposals.
a) Calculation of Pay Back Period.
Project A
Year £000
Annual cash inflow Cumulative cash flow
0 -1000000
1 300000 -700000
2 300000 -400000
3 300000 -100000
4 300000 200000
5 300000 500000
6 300000 800000
Pay back period of Project A = 3 + 100000 / 300000

= 3 + 0.33
= 3.33 years
Project B
Year £000
Annual cash inflow Cumulative cash flow
0 -400000
1 100000 -300000
2 100000 -200000
3 100000 -100000
4 100000 0
Pay back period of Project B = 4 years
Project C
Year £000
Annual cash inflow Cumulative cash flow
0 -700000
1 200000 -500000
2 200000 -300000
3 200000 -100000
4 200000 100000
5 200000 300000
Pay-back period of Project C = 3 + 100000 / 200000

= 3 + 0.5
= 3.5 years
Project D
Year £000
Annual cash inflow Cumulative cash flow
0 -614500
1 100000 -514500
2 100000 -414500
3 100000 -314500
4 100000 -214500
5 100000 -114500
6 100000 -14500
7 100000 85500
8 100000 185500
9 100000 285500
10 100000 385500
Pay-back period of Project D = 6 + 14500 / 100000
= 6 + 0.145
= 6.145 years
Project E
Year £000

Annual cash inflow Cumulative cash flow
0 -500000
1 120000 -380000
2 120000 -260000
3 120000 -140000
4 120000 -20000
5 120000 100000
6 120000 220000
7 120000 340000
Pay back period of Project E = 4 + 20000 / 120000
= 4 + 0.17
= 4.17 years
Project F
Year £000
Annual cash inflow Cumulative cash flow
0 -560000
1 100000 -460000
2 100000 -360000
3 100000 -260000
4 100000 -160000
5 100000 -60000

6 100000 40000
7 100000 140000
8 100000 240000
9 100000 340000
10 100000 440000
Pay back period of Project F = 5 + 60000 / 100000
= 5 + 0.6
= 5.6 years
Project G
Year £000
Annual cash inflow Cumulative cash flow
0 -200000
1 100000 -100000
2 100000 0
3 80000 80000
4 80000 160000
5 80000 240000
6 80000 320000
Pay back period of Project G = 2 years
b) Calculation of Net Present Value of Projects.
Project A

Year £000
Annual cash inflow PV value Discounted cash flow
0
1 300000 0.909 272700
2 300000 0.826 247800
3 300000 0.751 225300
4 300000 0.683 204900
5 300000 0.621 186300
6 300000 0.564 169200
Total 1306200
Net present value of Project A = Total inflow – Total Outflow
= 1306200 – 1000000
= £ 306200
Project B
Year £000
Annual cash inflow PV value Discounted cash flow
0
1 100000 0.909 90900
2 100000 0.826 82600
3 100000 0.751 75100
4 100000 0.683 68300

Total 316900
Net present value of Project B = 316900 – 400,000
= - £ 83100
Project C
Year £000
Annual cash inflow PV value Discounted cash flow
0
1 200000 0.909 181800
2 200000 0.826 165200
3 200000 0.751 150200
4 200000 0.683 136600
5 200000 0.621 124200
Total 758000
Net present value of Project C = 758000 – 700,000
= £ 58000
Project D
Year £000
Annual cash inflow PV value Discounted cash flow
0
1 100000 0.909 90900
2 100000 0.826 82600

3 100000 0.751 75100
4 100000 0.683 68300
5 100000 0.621 62100
6 100000 0.564 56400
7 100000 0.513 51300
8 100000 0.467 46700
9 100000 0.424 42400
10 100000 0.386 38600
Total 614400
Net present value of Project D = 614400 – 614,500
= £ -100
Project E
Year £000
Annual cash inflow PV value Discounted cash flow
0
1 120000 0.909 109080
2 120000 0.826 99120
3 120000 0.751 90120
4 120000 0.683 81960
5 120000 0.621 74520
6 120000 0.564 67680

7 120000 0.51 61200
Total 583680
Net present value of Project E = 583680 – 500,000
= £ 83680
Project F
Year £000
Annual cash inflow PV value Discounted cash flow
0
1 100000 0.909 90900
2 100000 0.826 82600
3 100000 0.751 75100
4 100000 0.683 68300
5 100000 0.621 62100
6 100000 0.564 56400
7 100000 0.513 51300
8 100000 0.467 46700
9 100000 0.424 42400
10 100000 0.386 38600
Total 614400