professor ryan 5749447 2

 

You have recently been appointed as a business adviser with a local Chamber of Commerce. They provide advice for business start-ups and strategic advice for existing SME’s.

 

Recently David Laughton has approached the Chamber of Commerce for advice regarding a possible investment.  He has recently been made redundant and has received £100,000 redundancy payment.  His wife Sara has had a small catering business which undertakes outside catering, mainly for weddings, funeral teas and children’s parties.  Currently this is all done from the large kitchen in their house.

 

If David were to use all or part of his redundancy money thenSara’s business could expand and have permanent dedicated premises with a small café.  There are two possible investment opportunities open to them.  The first is an old bakery on the main street of their local village and would require an investment of £100,000, which is all of the money.  The second option is the Village Hall Tearoom which would require an investment of £60,000 but has less capacity than the first project.

 

After extensive research the projected cash flows are estimated as follows.  It may be assumed that the cash flows arise evenly throughout the year.

 

Year	Old Bakery £	Village Hall Tearoom £
1	20,000	17,000
2	50,000	35,000
3	50,000	30,000
4	40,000	56,000
5	20,000	34,000

 

David and Sara agree that they need a minimum 15% return on their investment if it is to be worthwhile.

 

TASKS

 

Your task as a Business Advisor is to produce an informal report for David and Sara which gives a full Capital Investment Appraisalof bothinvestment opportunities.  This report should be as detailed as possible and conclude with recommendation(s)and reasons.

 

Your report should contain the following:

 

• The purpose and value of CapitalInvestmentAppraisals
• Calculations using both non-discounting and discounting methods of investment appraisal.
• Comment on the limitations and advantages of the techniques used.
• Of the techniques you have used state which two in your opinion are of most use.
• Recommend which project is the better option, stating why it is superior to the other option.

 

 

In addition you are required to submit a paper copy of your assignment with the attached front cover sheet.  This may be submitted to Tim on Monday 13th May between 4:30 and 6:00pm in the EMMTEC building or after Tuesday’s lecture (please note the Turn-it in copy must have been submitted before the Monday deadline.)

Any handwritten sections should be photocopied and included in the electronic submission.

All sources should be referenced in accordance with the Harvard System of Referencing.

After submission you may be interviewed on the contents of your assignment.  This is known as an academic Viva.

Show all your calculations.