Impact of Finance on Business Decisions
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. There are different types of appraisal methods which include… NPV (Net Present Value) – From working out the NPV this shows me the present value of taking on the project, the way you work this out is by… A percentage is worked out as it is 14% after when the decimal figures is calculated it is multiplied by the Net Cash Savings, this then worked out for the 5 years.
As the investment sum is i?? 150,000 this is subtracted by the total of the Discounted Figure of 154,630. 80 to give the total which is known as the NPV. PBP (Payback Period) – This is a very interesting process in a business which can know a figure of which they have to return. It shows how long it takes for the money to be given back and how much which is usually subtracted from the initial investment. By working out the payback period for all years it comes to a point where nothing is able to be paid back as it is paid off.
This is where the figure decreases towards 0 then passes the point and starts to raise. In this table of PBP it shows us that the amount starts to rise again in Year 4. My estimation for this is that it took 3 years and 6 months. I have come to this conclusion because in Year 3 the amount left to payback was i?? 25,000 and then in Year 4 it then became -i?? 25,000, this shows that the figure had gone pass the 0 point so it had made i?? 50,200. So to my calculations it shows that in the middle of the year it had gone pass the 0 point and had paid back all the money.
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