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Impact of Finance on Business Decisions (Appraisal Methods)

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Introduction

Impact of Finance on Business Decisions Task C Introduction In this assignment I will be looking at two businesses's which will need to be compared to find out which method it should be taken. These calculations will show me what way they should go so it would benefit them profitably wise, either on a long or short-term basis. The calculations would show me the term for 3 years and what I will be making and what I will be losing. From the calculations calculated I will make a decision on what stages could be best suitable for them to make the payback. The business Lee Ltd has the funds to put forward for a "Transport Project" or a "New Networking Project". It is up to them to see what project is best suitable for them and which one they would go for. The firm has a decision whether they want to go along with Transportation or Network Project the figures show... Appraisal Methods For every business to know where they should invest their money it is essential to research what they should do. This is either by investing in a long term project, invest in a machinery to see whether that equipment will come to any use and provide goods more then it actually cost. ...read more.

Middle

ARR (Account Rate Return) - This method shows how much percent the business owes. It is a good explanation for working out what amount is going. The ARR is calculated by taking the Expected Average profits and dividing it by the Initial Investment. Before working out the calculation the Expected Average Profit needs to be calculated, this is by adding up all the Net Cash Savings and dividing the total by the amount of years. By working out the figure it showed that the Account Return Rate was 30.747% for the finance returned Strengths and Weaknesses for Investment Appraisal NPV Advantages - * This is a good way of finding out what method is realistic and how much value its cash would give them. * It is a clear way of showing the future's capital. * Not Hard to work out but a calculation needed with expertise. Disadvantages - * The discount percent is made up by the organisation. * Estimate is not always correct. * It is the hardest method to calculate. PBP Advantages - * This way of calculating finances is simple and quick to understand * This method is helpful to work out any liquidity issues * The shorter the payback period the safer the business * Not hard to plot Disadvantages - * After payback periods have been settled the cash flow is not looked upon properly. ...read more.

Conclusion

The problem with vehicles rented is that if any damage is caused then charges are high. Being able to deliver goods on time also makes a difference as it leaves customers satisfied. Advertisements cold be made on their own vehicles which would increase publicity. Benefits of Network Project There are many benefits of investing in a network project as they could make the accounting easy as it would not require high level of skill to do them. Having a well updated network would help Lee Ltd to get their business online and be able to sell goods on the internet. This would lead to a 24 hour service available to everyone. Conclusion The conclusions which I have decided for the project to be invested in would be the transport project as it shows better reasonable calculation from the NPV and ARR. These aspects show that Lee Ltd would get a higher rate in return if they were to keep the investment continued for a longer basis. If the PBP is longer the Networking Project this would not make a lot of difference as to paying back period. The idea of having the Networking Project is not bad as this would help them in the future to get their business online and be able to publicise their business. ...read more.

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