The specified case study represent that 2 investment suggestions have been accessible by the marketing student, Mark and Paul. They have briefed both the orders in front of many people to make some investment into the opportunities and improve the value of invested money. In this case study paper, different methods and equipment have been contested to investigate and compare the best investment proposal into given proposals by the Mark and Paul. Capital budgeting techniques and tools have been used in this report to analyze the first investment proposal and budgeting techniques and tools have been used in this report for the second proposal proposed by Mark and Paul (Garrison et al, 2010). This case study depict that, the major aphorism of this report paper is to examine the best venture opportunity which would present the people who has invested their amount, more return and the suggestion of the asset would be striking for the people. More, various limitations and scopes are situated of both the investment with the nature of the investment. Through this report, it has been found that the opportunities and the nature of the business are more striking and these opportunities make it a profitable deal for the investors as the investment would be higher.
Investments are the amount which is proposed by an individual, government or a firm into some financial securities or business proposals from their savings to encourage the value of the savings amount. The investment is a back bone of every organization. If an organization do not get any investment from the market then it becomes quite tough for the organization to run the business (Brewer, Garrison and Noreen, 2005). The nature of the investment is viable in nature and at the same time, the scope of investment is quite wider. The investment opportunity must be analyzed by the investor before investing the amount in that so that a better result could be got.
Mark and Paul, the marketing student of a university has proposed two investment opportunity to invest and enhance the value of the money. First opportunity offered by them is the investment into a new business, restaurant. In the case study, various revenues and expenditure have been described by them which are required to start the business. Through the case study, it has been found that the return from this technique could be investigated through the technique of budgeting report. Following are the details which have been given by the Mark and Paul for this investment is:
|
Restaurant Purchase and Expenses |
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|
Machinery/ equipment |
$ 1,10,000 |
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Furniture (tables and chairs) |
$ 30,000 |
|
Vehicle (Deliveries) |
$ 43,000 |
|
Utensils (cups, plates) |
$ 18,000 |
|
Produce (for 1 week) |
$ 10,000 |
|
Drinks (For 1 month) |
$ 20,000 |
|
Bank |
$ 80,000 |
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Purchase of $10,000 for a week from June 1 and the amount of purchase would be given to suppliers from 1 august. |
|
|
Purchase of $ 20,000 for 1 month from July-1 and the amount of purchase would be given to suppliers periodically which is as follows: |
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|
10% in current month |
|
|
45% in second month |
|
|
45% in third month |
|
|
Labour |
|
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Number of casual labour |
3 |
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Working in a day (hours) |
6 hours |
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In a week (days) |
6 days |
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Rate |
$ 23 per hour |
|
Drawings |
$ 10000 each per month |
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Overhead |
$ 5,000 |
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Sales |
|
|
20000 meals in first month |
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|
18000 meals in second month |
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|
18000 meals in third month |
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|
22000 in forth month |
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Average selling price |
$ 45 |
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Drink sales would be triples the amount of meals per month. |
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Drink Price |
$ 6 |
Through the above given details, return from this investment would be get through applying the techniques of budgeting. Following are the details:
From the above given details in the case study, the following calculations of sales budget has been done. These depict about the total units of sales of meal and the drinks. As well as the total sales of the restaurant has also been analyzed through this reports. The sales budget of the company depict that the sales of the meal is 1/3rd of the total sales of drinks. The total sales of the company has been analyzed $ 12, 60, 000 in June, $ 11, 34, 000 in July, $11,34,000 in August and $ 13,86,000 in September. This depict that the high revenue could be get by the investors through this business (Lafond and Roychowdhury, 2008).
|
Sales budget |
||||
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For the year 2017 |
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June |
July |
August |
September |
|
|
Sales of meals |
20000 |
18000 |
18000 |
22000 |
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Sales per unit. |
$ 45 |
$ 45 |
$ 45 |
$ 45 |
|
Sales price |
$ 9,00,000 |
$ 8,10,000 |
$ 8,10,000 |
$ 9,90,000 |
|
Sales of drink |
60000 |
54000 |
54000 |
66000 |
|
Sales per unit. |
$ 6 |
$ 6 |
$ 6 |
$ 6 |
|
Sales price |
$ 3,60,000 |
$ 3,24,000 |
$ 3,24,000 |
$ 3,96,000 |
|
Total Sales |
$ 12,60,000 |
$ 11,34,000 |
$ 11,34,000 |
$ 13,86,000 |
From the above given details in the case study, the following calculations of labour hour and labour rate has been done. These depict about the total labour hour as well as the total labour expenses of the company. The labour budget of the company depict that the total labour hours worked in the restaurant would be 432 hours in all the four months. The total labour cost of the company has been analyzed which is $ 9,936 in June, $ 9,936 in July, $ 9,936 in August and $ 9,936 in September. This depict that the labour cost is fixed in the restaurant (Deegan, 2013).
|
Restaurant Purchase and Expenses |
||||
|
Labour budget |
||||
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For the year 2017 |
||||
|
June |
July |
August |
September |
|
|
Number of labour |
3 |
3 |
3 |
3 |
|
Working in a day (hours) |
6 |
6 |
6 |
6 |
|
In a week (days) |
6 |
6 |
6 |
6 |
|
Total weeks |
4 |
4 |
4 |
4 |
|
Total Working hours |
432 |
432 |
432 |
432 |
|
Rate |
23 |
23 |
23 |
23 |
|
Total Labour rate |
9936 |
9936 |
9936 |
9936 |
From the above given details in the case study, the following calculations of total cash flows have been done. These depict about the total cash inflows as well as the total cash outflows of the company. The cash budget of the company depict that the total cash outflow of the company in next four months would be $2,35,936, $36,936, $85,936 and $94,936. The total cash inflow of the company has been analyzed which would be $ 12,60,000 in June, $ 11,34,000 in July, $ 11,34,000 in August and $ 13,86,000 in September. This depict that the cash inflow of the company is higher.
|
Restaurant Purchase and Expenses |
||||
|
Cash budget |
||||
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For the year 2017 |
||||
|
June |
July |
August |
September |
|
|
Beginning cash balance |
$ 80,000 |
1104064 |
2201128 |
3249192 |
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Add: budgeted cash receipts for meal and drinks |
$ 12,60,000 |
$ 11,34,000 |
$ 11,34,000 |
$ 13,86,000 |
|
Total cash available for use |
$ 13,40,000 |
$ 22,38,064 |
$ 33,35,128 |
$ 46,35,192 |
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Less: cash disbursements |
||||
|
Direct Material of meals and drinks |
$ 2,000 |
$ 51,000 |
$ 60,000 |
|
|
direct Labour |
$ 9,936 |
$ 9,936 |
$ 9,936 |
$ 9,936 |
|
Overhead |
$ 5,000 |
$ 5,000 |
$ 5,000 |
$ 5,000 |
|
Withdrawals |
$ 20,000 |
$ 20,000 |
$ 20,000 |
$ 20,000 |
|
Machinery |
$ 1,10,000 |
|||
|
Furniture |
$ 30,000 |
|||
|
Vehicle |
$ 43,000 |
|||
|
Utensils |
$ 18,000 |
|||
|
Total disbursements |
$ 2,35,936 |
$ 36,936 |
$ 85,936 |
$ 94,936 |
|
Cash surplus |
$ 11,04,064 |
$ 22,01,128 |
$ 32,49,192 |
$ 45,40,256 |
|
budgeted ending cash balance |
$ 11,04,064 |
$ 22,01,128 |
$ 32,49,192 |
$ 45,40,256 |
Through analyzing all the three budgets, it has been found that the restaurant proposal is quite beneficial as the revenue as well as cash inflow of the company is quite higher than the total expenses of the company. Through this report, it has also been found that high return would be got through this investment proposal (Van der Stede, 2001).
Various practical issues could impact over an investment opportunity. Through this report, it has been found that the market changes, new competitors in the market, already existed players, changes in the economy etc could impact over the opportunity negatively which would make the return negative (Nobes & Parker, 2008).
Mark and Paul, the marketing student of a university has proposed two investment opportunity to invest and enhance the value of the money. Second opportunity offered by them is the investment into new machineries. In the case study, various revenues and expenditure have been described which are required to manage the machineries. Through the case study, it has been found that the return from this technique could be investigated through the technique of capital budgeting report (Needles, Powers and Crosson, 2013). Following are the details which have been given by the Mark and Paul for this investment is:
|
Initial Cost |
$ -3,90,000 |
|
Cash Inflows |
|
|
June |
$ 1,00,000 |
|
July |
$ 2,30,000 |
|
Aug |
$ 1,90,000 |
|
Sept |
$ 1,40,000 |
From the above given details in the case study, it has been found that the total net present value of the investment opportunity would be $ 1,06,851.08 whereas the payback period of the company would be 3.77 years and the average return of this investment opportunity would be 27.40%.
Through analyzing both the investment proposal, it has been found that both the investments are important for the point of view of the entrepreneur but according to the investor, the business which offers more return with less risk is more suitable. In this report, first investment proposal is more beneficial as this offers the high return to the investors than the second proposal. So an investor is suggested to invest into the first proposal but if investor doesn’t want to face any risk then second option is better (Bierman, 2010).
Conclusion:
Thus through this report, it could be concluded that both the opportunities offered by Mark and Paul for investment are better in their own way. First opportunity offer high return but at the same time, risk is also higher whereas in second opportunity, less risk is situated.
References:
Brewer, P.C., Garrison, R.H. and Noreen, E.W., (2005). Introduction to managerial accounting. McGraw-Hill Irwin.
Bierman, H., (2010). An introduction to accounting and managerial finance: a merger of equals. World Scientific.
Deegan, C., (2013). Financial accounting theory. McGraw-Hill Education Australia.
Garrison, R.H., Noreen, E.W., Brewer, P.C. and McGowan, A., (2010). Managerial accounting. Issues in Accounting Education, (25(4), pp.79(2-793.
Lafond, R. and Roychowdhury, S., (2008). Managerial ownership and accounting conservatism. Journal of accounting research, 46(1), pp.101-135.
Needles, B., Powers, M. and Crosson, S., (2013). Financial and managerial accounting. Nelson Education.
Nobes, C. and Parker, R.H., (2008). Comparative international accounting. Pearson Education.
Van der Stede, W.A., (2001). Measuring ‘tight budgetary control’. Management Accounting Research, 1(2(1), pp.119-137.
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