Value Of Investment Appraisal Techniques †MyAssignmenthelp.com

Question: Discuss about the Value Of Investment Appraisal Techniques. Answer: Introduction The overall evaluation of the assignment mainly evaluates the financial services that could be used in identifying the value of investment appraisal techniques. In addition, the investment appraisal techniques are mainly used in evaluating the investment proposal, which could help in identifying the viable investment option for Mark and Paul. Nature and Scope of Investments There are two different types of investments, which could directly help in generating the relevant return from investment. The first investment directly provides a relevant investment of around $261,000 initially, while the second investment needs around $390,000. Both the investments intend to provide relevant returns from investment in near future, which could direly help in generating higher profits from operations (Bodie 2013). The first investment scope needs hard work and operational capability from Mark and Paul for running the restaurant. However, the second investment scope only need venture capital investments from Mark and Paul. Investment Opportunity One Budgets: Sales Budget Sales Budget August September Particulars Meal Drink Meal Drink Sales Volume of drink 20,000.00 60,000.00 18,000.00 54,000.00 Selling price $ 45.00 $ 6.00 $ 45.00 $ 6.00 Sales $ 900,000.00 $ 360,000.00 $ 810,000.00 $ 324,000.00 Total sales per month $ 1,260,000.00 $ 1,134,000.00 Labour Budget Labour Budget Particulars August September Per hour rate $ 23.00 $ 23.00 Working hours 6.00 6.00 Number of staff 3.00 3.00 Working day per week 6.00 6.00 Number of week in month 4.00 4.00 Total labour cost per month $ 9,936.00 $ 9,936.00 Cash Budget Cash Budget Particulars June July August September Cash Collection $ 1,260,000.00 $ 1,134,000.00 Cash paid for drinks $ 2,000.00 $ 11,000.00 $ 20,000.00 Cash paid for meals $ 40,000.00 $ 40,000.00 Overheads $ 5,000.00 $ 5,000.00 $ 5,000.00 $ 5,000.00 Labour cost $ 9,936.00 $ 9,936.00 Drawings $ 20,000.00 $ 20,000.00 $ 20,000.00 $ 20,000.00 Noncurrent assets $ 201,000.00 Available Cash $ (226,000.00) $ (27,000.00) $ 1,174,064.00 $ 1,039,064.00 Add openings cash balance $ 80,000.00 $ (146,000.00) $ (173,000.00) $ 1,001,064.00 Closing cash balance $ (146,000.00) $ (173,000.00) $ 1,001,064.00 $ 2,040,128.00 Overview and Analysis of Budgets The evaluation of the sales budget mainly states that relevant income from operations is been generated, where meals sales are relatively generating higher revenue. Moreover, the sale of drinks is triple of the sales that are generated from meals (Scott 2016). Therefore, the sale budget mainly represents the sales that is been conducted in August and September, as the overall restaurant started in August. The selling price per meals is $45 and for drinks is $6, which provides a total revenue of $ 1,260,000 in August and $ 1,134,000 in September. The overall labour budget mainly represents the expenses that is been conducted by the restaurant on labour. The overall estimation of the wage rate is $23 per hour, which directly makes the labour expense on month basis at $9,936. The evaluation of the cash budget mainly helps in representing the overall cash flow of the investment that is been conducted by the organisation. The relevant cash flow from investment could be seen from the cash budget (Einsele 2013). Moreover, the closing cash balance in June and July was negative, while from August the cash flow closing balance becomes positive, as revenue generated from operations was relevantly high. Hence, the closing cash balance of September is estimated to be at $ 2,040,128.00. Practical issues associated with investment: The major practical issues that could be identified from the restaurant investment proposal are the experience that is needed for running the restaurant. The main practical issue that could be identified from the evaluation is the experience, which is needed by Mark and Paul for running the business. However, there are no specifics information regarding the experience that is gather by Mark sand Paul. Moreover, Mark and Paul are university students in marketing, which hardly provides any kind of experience in running the restaurant business and estimating the costs of the investment. Investment Opportunity Two Evaluation Cost of capital 12% Year Cash flow Cumulative cash flow 0 $ (390,000) $ (390,000) 1 $ 100,000 $ (290,000) 2 $ 230,000 $ (60,000) 3 $ 190,000 $ 130,000 4 $ 140,000 $ 270,000 NPV $ 106,851.08 ARR 42.31% Payback Period 2.3 years The evaluation of the NPV, ARR and Payback period directly indicates that the investment is a viable option, which could directly help Mark and Paul to generate higher revenue from investment. The NPV directly indicates that the investment will provide an additional income of $106,851.08 from investment. Moreover, the ARR is at 42.31%, which is relatively higher than cost of capital and Payback period is at 2.3 years, which is fairly early. These evaluations directly indicate that the project is relevantly viable and could provide higher returns from investment (Gotze, Northcott and Schuster 2016). Comparison of Investment Opportunities The comparison of the two businesses mainly helps in identifying the relevant income that could be generated from the business opportunity. However, there are different types of non financial investment decisions, which need to be conducted for evaluating the business opportunity. However, from the evaluation it could be understood that the first investment options directly involves involvement of Mark and Paul in restaurant business, where both the individuals does not have any kind of experience. Moreover, Mark and Paul are university students studying marketing, while the financial evaluation and estimation conducted in the first investment option could be problematic options for both the individuals. However, the second investment options is a a new business development on the Gold Coast with other venture-capital investors. In this investment options Mark and Paul would only have to invest the money and there is no personnel involvement in the business. Therefore, the experience in running the business is not needed. Hence, the business could directly allow Mark and Paul to generate relevant income from investment, while reducing their involvement in the business. Thus, investment in the second proposal is much better option for Mark and Paul. References: Bodie, Z., 2013.Investments. McGraw-Hill. Einsele, G., 2013.Sedimentary basins: evolution, facies, and sediment budget. Springer Science Business Media. Gotze, U., Northcott, D. and Schuster, P., 2016.INVESTMENT APPRAISAL. SPRINGER-VERLAG BERLIN AN. Scott, P., 2016.Accounting for Business. Oxford University Press.