Investment Proposal Analysis: Restaurant Vs Business Development

Nature and scope of investment

According to this case, Mark and Paul have planned to invest their amount. They have found 2 proposals in the market where they can invest the amount and earn the revenues from the market. In this report, capital budgeting techniques and budgeting reports have been analyzed to identify the best project. So that the better revenues could be get by the Mark and Paul. Through the investment into both the given investment, it would be easy and beneficial for an investor to enhance the return more and make the amount profitable. Further, there are some limitations of this task such as it is not compulsory that the budgeted things take place and it has also analyzed that the present value of future amount could not be recognized properly. Further, various assumptions are also required for these calculations. So a reliable outcome cannot be got through these techniques. But investments could be analyzed and a better comparative result could be got.

Nature and scope of investment:

Investments are the application to invest the amount in any proposal to enhance the worth of the amount. In second words, investments are the savings which are processed further to enhance the invested amount’s worth. In finance, buy of financial products and other similar products with an expectation of more future returns. In this report, investment’s nature has been analyzed and it has been found that both the investments would offer high return to its investors (Bierman, 2010). There is lot scope of first investment as the return of first investment which is investment in the restaurant is quite higher than the investment into the business development process. This report depicts the reader about entire process through which the best investment could be recognized. And in this report, two investment proposals have been investigated to analyze the best proposal.

Investment opportunity one:

In first opportunity, Mark and Paul have an option to invest to invest into a new restaurant. In this proposal, they both are required to buy various machineries and noncurrent assets firstly to start the business and according to the case, the business would start offering revenue to them from the first month itself (Brewer, Garrison and Noreen, 2005). Through the case following details have been analyzed:

Through the above details, sales budget, cash budget and labour budget has been prepared to analyze the return of the proposal and through this report, it has also been analyzed that how much profit would be earned by the company in an quarter.

Investment opportunity one

Sales budget:

Sales budget is a budget report which tells the user about the future prediction about the products and services sales of the company. Sales budget are made by the companies to identify the total selling unit and the total revenue of the company. So that the other plans and strategy of the company could be done accordingly.

According to this case study, the total sales unit of the restaurant would be 20000, 18000, 18000 and 22000 in Jun, July, Aug and Sept respectively of meals and the sales unit of the restaurant drinks would be 60000, 54000, 54000 and 66000 in Jun, July, Aug and Sept respectively (Radebaugh, Gray and Black, 2006).  Thus the total sales of the company would be $12,60,000, $11,34,000,  $11,34,000 and $13,86,000 in Jun, July, Aug and Sept respectively.

Labor budget:

Further, labour budget is a budget report which tells the user about the future prediction about the required labour hour and the labour rate of the company. Labour budget are made by the companies to identify the total labour hour and the total cost of labour of the company. So that the other plans and strategy of the company could be done accordingly.

According to this case study, the total labour unit of the restaurant would be 432, 432, 432 and 432 in Jun, July, Aug and Sept respectively. The rate of the labour per hour is $23.  Thus the total labour cost of the company would be $9936, $9936,  $9936 and $9936 in Jun, July, Aug and Sept respectively (Van der Stede, 2001).

Cash budget:

Further, cash budget is a budget report which tells the user about the future prediction about the future cash inflows and cash outflows of the company. Cash budget are made by the companies to identify the total cash in hand. So that the other plans and strategy of the company could be done accordingly (Nobes and Parker, 2008).

According to this case study, the total cash inflow of the company would be $13,40,000, $21,98,064, 32,55,128 and $45,55,192 in Jun, July, Aug and Sept respectively. The total cash outflow of the company would be $2,75,936, $76,936, $85,936 and $94,936 in Jun, July, Aug and Sept respectively.  Thus the total cash surplus of the company would be $10,64,064,  $21,21,128, $31,69,192 and $44,60,256 in Jun, July, Aug and Sept respectively.

Thus according to the above analysis and calculations, the restaurant idea would offer the high return to the Mark and Paul. This case depict that at the end of each month, they would be able to have $10,64,064,  $21,21,128, $31,69,192 and $44,60,256 in their hand or bank account (Lafond and Roychowdhury, 2008). This study also depicts that if the investment would be done in this proposal than there are more chances for the company to get high return. Further, entire budgets are linked to each other and finally depict about the good performance of the investment proposal.

Sales budget

Through analyzing the case, it has been analyzed that Mark and Paul has $ 80,000 only in their hand and huge investment is required in this task. Rest the practical issues were few and thus the investment would be easy for the Mark and Paul (Horngren, 2009).

Investment opportunity two:

In second opportunity, Mark and Paul have an option to invest into a business development process. In this proposal, they both are required to buy machineries firstly to start the business and according to the case, the business would start offering revenue to them from the first month itself. Through the case following details have been analyzed:

For analyzing this case, capital budgeting techniques have been analyzed. NPV, Payback and average rate of return techniques have been taken into concern. Further, the NPV techniques depict that this case would offer the total return of $ 95,402.72 in 4 months. In addition, the payback period technique depict that the entire amount would be get back by the company in 3.77 years and lastly the accounting rate of return depict that the return % of this investment is 30.79%. Thus according to the above analysis, every part of this assignment is quite high and positive and would offer a great return to the investor.  

Both the investment opportunity has been analyzed and it has been found that both investments are profitable. In project 1, $44,60,256 would be in the hand of the investors after completion of 4 months whereas in second investment, $ 95,402.72 would be in the hand of the investors after completion of 4 months. In both the investments, different techniques have been taken into consideration to identify the performance and profitability position of both the investment proposal (Garrison et al, 2010).

According to the outcome of both the investment, it has been found that the first project is more profitable. Through there are some practical issues which could be faced by the investor, if the investment is done into first project which are a huge requirement of the cash in hand for the investor to start the business and according to the case, investors has only $80,000 in hand. Still, investment into first project is more profitable and thus inventors must invest in that only (Deegan, 2013).

Conclusion:

Through this study, it has been found that the first project is more profitable. Through there are some practical issues which could be faced by the investor, if the investment is done into first project which are a huge requirement of the cash in hand for the investor to start the business and according to the case, investors has only $80,000 in hand. Still, investment into first project is more profitable and thus inventors must invest in that only.

References:

Bierman, H., (2010). An introduction to accounting and managerial finance: a merger of equals. World Scientific.

Brewer, P.C., Garrison, R.H. and Noreen, E.W., (2005). Introduction to managerial accounting. McGraw-Hill Irwin.

Brown, P., Beekes, W. and Verhoeven, P., (2011). Corporate governance, accountin

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.

Horngren, C.T., (2009). Cost accounting: A managerial emphasis, 13/e. Pearson Education India.

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.

Radebaugh, L.H., Gray, S.J. and Black, E.L., (2006). International accounting and multinational enterprises. New York, NY: John Wiley & Sons.

Van der Stede, W.A., (2001. Measuring ‘tight budgetary control’. Management Accounting Research, 1(2(1), pp.119-137.

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