Investment Appraisal

                                30,000

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Quantitative Factors for Project 2

After 3 years £2,000 is still needed

In year 4 £5,000 is received

Payback will therefore be:

2,000    x 12 = 4.8 = 4 years and 5 months

5,000

The annual rate of return for project 2 would be

£3,000 ÷ 4 = £750

£30,000 ÷ £750 = 40%

Net Present Value (NPV) =             1,630 x 100 = 5.4%

                                30,000        

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On financial grounds by looking at the table below, it can be seen that project 1 is preferred on financial grounds.

Qualitative factors

• how reliable the resources are
• the level of risk
• personnel and human relations areas
• the economy
• the company image 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 for project 2:

Advantages

• more rentals could take place at a time
• could lead to more interest in the company
• sales could go up
• people looking for a particular boat could find it here
• good quality would boost company image
• the economy is currently down so it would be going up
• the risk of loosing customers is low
• would be proactive to the competition

Disadvantages

• costs of the boats may go up
• petrol prices may go up
• insurance would be expensive
• higher risk of vandalism and theft
• maintenance costs would go up
• more office work to do
• the prices may have to be increased to keep up with maintenance

Evaluation

Project 1 involves a lot of research and if the resources are not reliable, it can cause major problems for the company. 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.

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Table of costs for Breakeven graph