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Investment Appraisal

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Introduction

Investment Appraisal Project 1 Opening a new location near Bristol - �30,000 Project 2 Purchase two more boats - �30,000 Quantitative Factors for Project 1 Year Net Cash Flow Cumulative Cash Flow 0 (�30,000) (�30,000) 1 �8,000 (�22,000) 2 �8,000 (�14,000) 3 �8,000 (�6,000) 4 �8,000 �2,000 After 3 years �6,000 is still needed In year 4 �8,000 is received Payback will therefore be: �6,000 x 12 = 4.5 = 4 years and 4 1/2 months �8,000 The annual rate of return for project 1 would be �2,000 � 4 = �500 �30,000 � �500 = 60% Discounted Cash flows Year Discount Present Value 0 1 (�30,000) 1 0.98 �7,840 2 0.96 �7,680 3 0.94 �7,520 4 0.93 �7,440 �480 Net Present Value (NPV) = 480 x 100 = 1.6% 30,000 Quantitative Factors for Project 2 Year Net Cash Flow Cumulative Cash Flow 0 (�30,000) ...read more.

Middle

and marketing - the emphasis on the "quality of life" Qualitative Factors for project 1: Advantages - the company would be entering a new audience - it would open job opportunities - there may be a higher demand - more people would hear about the company from word of mouth - sales may be higher in the new location - the wages for workers may be lower - they may be eligible for special grants - transport from each town is easy (motorways, rivers) Disadvantages - there could be more competition in the new location - depends on how desperate my company is to move to a new location - the sales could be lower - the company image could go down - the market may be too saturated for another boat hiring business - the area could have a high crime rate - Communication between offices is hard Qualitative Factors ...read more.

Conclusion

There would be a lot of competition which could "drown" the company. It would be easier than starting a company in London but if a market is found in London there is no need to open another branch. The best option is to expand the market which my business has found. Although project 2 has very expensive costs involved, by careful work by the financial department it can work very realistically and has a lot of potential. The qualitative factors are not as good as project 1 but the idea could become an essential investment. Table of costs for Breakeven graph Output Revenue Variable Costs Fixed Costs Total Costs 1 �500 �100 �2200 �2300 2 �1000 �200 �2200 �2400 3 �1500 �300 �2200 �2500 4 �2000 �400 �2200 �2600 5 �2500 �500 �2200 �2700 6 �3000 �600 �2200 �2800 ?? ?? ?? ?? Paramdeep Lotay Centre Number: 52235 Candidate Number: 0320 Business Studies Coursework ...read more.

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