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Introduction Of Accounting And Financing Of Decision Making Assignment
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1. Executive summary
In the report, it has been discussed the impact of Covid 19 in the organization and economy dramatically. In this study, it has been discussed the Accounting and finance making decision of e-commerce company which is Amazon. The company is an online-based platform, which provides the platform to the small business and small company to sell their product globally. It is considered the most valuable brand all around the world. It was founded in 1994 July 5, in the United State, and its founder is Jeff Bozos. In the current year the Amazon Company’s net revenue is approx $ 469.822 billion. Currently it has approx 1608000 employees. ASs per the report Amazon is number one e-commerce company in the world. As compared to the report of the 2020 financial year, the company increased its brand value by 21.7 % in the financial year of 2021.
In this study net present value, internal rate of return will be calculated, along with PESTLE and SWOT analysis. It will initially help the company for the purpose of investment and benefit the company for long-term growth. The Payback analysis will also be calculated in this report. The Pestle and SWOT analysis will help the company to enhance the financial performance of the company. The NPV shows the present value of cash inflow and the present value of cash outflow. It benefits the company for investment planning and in capital budgeting. It will also discuss the risk and return and its impact on the financial performance of the company. It has conducted the quantitative and Qualitative techniques of information, which enhance the company investment section and provide the benefit of the company in the long term. Adoption of machine learning technology within the company will help to increase the profitability and performance of the company.
2. Motivation of the proposed investment
2.1 Purpose
As stated by the author Sheen (2022) in the current era most of the companies have faced the investment related problem\meds and economic crisis due to the covid 19 pandemic. The Amazon Company has also faced economic problems. It affects the business drastically.
After a few years, the companies are recovering. The company is trying to diversify its business plans and risk to grow in the near future; sandals try to recover from the pandemic effect. The company is looking for investment from outside to reduce its risk and the company is evaluating the opportunity of investment.
2.2 Process
As expressed by the author Wang (2020) the main problem that has caused the impact of covid 19, and lack of machine learning in the employee. Due to lack of machine learning in the employee, the effect was negative in the company. After the post pandemic, the consumers have placed the large number of orders and the company cannot solve that. The gap of technologies in the employee can be solved by adoption of machine learning technologies. These technologies will help the company to enhance its profitability and the company's performance for a long-term period.
2.3 Proposition
Adopting the Machine learning technologies which can help the company to fill the gap of financial performance and overall the machine technologies will help the company to enhance its business valuation. The com-any should try to hire experienced employees for sustainable growth.
Application of Machine learning technologies will help the company to increase the performance. A good experienced employee can assemble to fill the financial gap and provide the initial capability and benefits to the company. The company should try to train its employees properly and fill the gap of knowledge of machine learning. A proper knowledgeable employee can work properly and effectively within the time.
3. Conduction of investment appraisal
3.1 Conduction of payback analysis
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Payback period of the investment appraisal
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Year
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NET Cash flows (£`Million)
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Balance
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Payback period (Years)
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Year 0
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-850
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-850
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3.8
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Year 1
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-100
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-950
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|
Year 2
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200
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-750
|
|
Year 3
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1000
|
250
|
|
Year 4
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1200
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1450
|
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Year 5
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2150
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3600
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Payback period = (Initial investment / Cash flows per year)
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Table 1: Payback analysis
(Source: Created by the learner)
In this study the payback period of investment appraisal has been calculated through five years data and net cash flow of “Amazon Plc ''. In this calculation, the net payback period is 3.8 years.
3.2 Conduction of NPV and IRR
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Investment appraisal in Amazon plc
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Description
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Year 0
(£K)
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Year 1
(£K)
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Year 2
(£K)
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Year 3
(£K)
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Year 4
(£K)
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Year 5
(£K)
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Programmed Cost
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(850)
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(600)
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(700)
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550
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Annual Benefits
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500
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900
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1,000
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1,200
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1,600
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Net Cash Flow
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(850)
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(100)
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200
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1,000
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1,200
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2,150
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Cost of Capital (Coca)
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38.0%
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Discount Factor
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1.00
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0.72
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0.53
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0.38
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0.28
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0.20
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Present Value (PV)
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(850)
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(72)
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105
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381
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331
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430
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Net Present Value
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(850)
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(922)
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(817)
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(437)
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(106)
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324
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Year 0
(£K)
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Year 1
(£K)
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Year 2
(£K)
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Year 3
(£K)
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Year 4
(£K)
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Year 5
(£K)
|
|
Investment appraisal in Amazon plc
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(850)
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(922)
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(817)
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(437)
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(106)
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324
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Table 2: NPV of investment
(Source: created by the learner)
The NPV shows the difference between net present value of cash flow and in the calculation of Net present value of “Amazon” has been calculated through five years of data net cash flow and Coca. In the fifth year, the NPV is 324.
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IRR of the investment appraisal
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Year
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NET Cash flows (£`Million)
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Balance
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IRR (%)
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Year 0
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-850
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-850
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22%
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Year 1
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-100
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-950
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Year 2
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200
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-750
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Year 3
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1000
|
250
|
|
Year 4
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1200
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1450
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Year 5
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2150
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3600
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IRR = (Valuation based on Net cash flows of the investment)
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Table 3: IRR investment appraisal
(Source: created by learner)
The (IRR) internal rate of return helps to measure the profitability of potential investment. As per the report 22 % and above IRR is considered as a good IRR from an investment perspective. In the calculation of the IRR of “Amazon", the IRR is around 22 % which is considered good in the view of investment.
3.3 Conduction of PESTEL and SWOT analysis for the purpose of investment
Pestle analysis
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particulars
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explanation
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P-political Factors
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Stability of polo\ethical parties and government, the administrative system of countries produce a good impact on investment.
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E- Economical factors
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The factors of economical impact the investment and GDP. A high infection rate in the economy affects the investment overall.
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S- Social factors
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Social factors such as the income level of persona and the living standard of citizens and their qualification level made an impact on investment.
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T- Technological factors
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The Machine learning technologies help the company to improve its performance and efficiency. A good technology can affect the company's financial performance and help to increase the investment sector (Schema et al. 2019).
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L- Legal factors
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Data protection act, 2018 will be used by the company through this investment appraisal as its legal factors. It will help the company to protect from any fraud and third party users.
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E- Environmental factors
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The company will be using the environmental protection act, 1986 for the new investment appraisal for maintaining environmental sustainability. By the implementation of Machine learning technologies, the company can decrease some pollution level.
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Table 4: Pestle analysis
(Source: created by the learn)
SWOT analysis
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Strengths
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Weakness
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? It top company all around the world
? Growth of the company is increasing year by year after the post pandemic
? It have a good supply chain and distribution channel in globally
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? The operation profit decreased in the financial year of 2020 and 2021
? Lack of proper knowledge in the company employee.
? Unfair Business performance and misleading in the distribution sector (Voynarenko et al. 2020).
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Opportunities
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Threats
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? The company can expand in the near future by adopting machine-learning technologies.
? After the pandemic, the most of the people are shifting in the online store and e commerce platform, which can help their company for further growth.
? Implemented the price matching policy
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? In the current era, there are many companies on the ecommerce platform.
? In the company, some issues with the supply chain management.
? In online platforms, the biggest threat is cyber security (Yu 2019).
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Table 4: SWOT analysis
(Source: Created by the learner)
4. Discussion the risk and return and its impact on financial performance
4.1 Sensitivity analysis for the risk and return
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Investment appraisal in Amazon plc
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Assumptions
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Particulars
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Amt $
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Products sold
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Products sold
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$ 110,000.00
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$ 101,700.00
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$ 550.00
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$ 800.00
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$ 1,100.00
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$ 1,300.00
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$ 1,600.00
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Price per product
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$ 550.00
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$ 200.00
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$ 16,000.00
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$ 16,800.00
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$ 18,480.00
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$ 22,176.00
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$ 27,720.00
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Store rent of the business
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$ 5,000.00
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$ 175.00
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$ 21,000.00
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$ 22,050.00
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$ 24,255.00
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$ 29,106.00
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$ 36,382.50
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Total payroll
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$ 3,300.00
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$ 150.00
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$ 26,000.00
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$ 27,300.00
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$ 30,030.00
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$ 36,036.00
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$ 55,440.00
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Profit & loss statement
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$ 125.00
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$ 32,000.00
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$ 33,600.00
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$ 36,960.00
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$ 44,352.00
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$ 55,440.00
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Particulars (Assumptions)
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Amt $(Assumptions)
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$ 100.00
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$ 37,000.00
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$ 38,850.00
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$ 42,735.00
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$ 51,282.00
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$ 64,102.50
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Total revenue
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$ 101,700.00
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$ 75.00
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$ 42,000.00
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$ 44,100.00
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$ 48,510.00
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$ 58,212.00
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$ 72,765.00
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Cost of sales
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$ 49,500.00
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Gross profit
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$ 52,200.00
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Standardized costs
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$ 19,230.00
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Operating profit
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$ 32,970.00
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Table 5: Investment appraisal
(Source: Created by the learner)
4.2 Visualization of the cost of the capital
In the calculator of cost capital, the investment appraisal has been approx 38%. The current discounting factor and net cash flow can provide the initial benefits to the company (Awaysheh et al. 2020).
4.3 Evaluation of cost and its benefits
In the investment appraisal cost of benefits observed with the total cost and annual benefits. In the report, the annual benefits have been calculated in investment appraisal, which are £ (850), (922), (817), (437), (106), and 324 from the five years respectively.
4.4 The return on NPV
The return on NPV has been calculated through the present value factor and the discounting factor. After the calculator of NPV, the Coca is 38 %, which is quite good for investment purpose (de Souza et al.2020).
4.5 visualization of the discounted payback period
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Discounted payback period of investment appraisal
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Year
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NET Cash flows (£`Million)
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Balance
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Year 0
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-850
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-850
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|
Year 1
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-100
|
-950
|
|
Year 2
|
200
|
-750
|
|
Year 3
|
1000
|
250
|
|
Year 4
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1200
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1450
|
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Year 5
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2150
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3600
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Payback
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3.8
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3.80 years
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Discount Factor
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1
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0.72
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0.53
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0.38
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0.28
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0.2
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Year
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CF
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PV* CF
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Balance
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Year 0
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-850
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-850
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-850
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Year 1
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-950
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-684
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-1534
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Year 2
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-750
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-397.5
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-1081.5
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Year 3
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250
|
95
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-302.5
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Year 4
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1450
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406
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501
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Year 5
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3600
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720
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1126
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Discounted cash flows
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1324.5
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Discounted payback period
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5.597222222
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Table 6: Discounted payback period
(Source: Created by Lerner)
4.6 Impact on the company financial performance
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Particulars
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Amount 2021
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Amount 2020
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Sales/ Revenue
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£ 46,982,200.00
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£ 386,064,000.00
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Cost of Sales
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£ 403,507,000.00
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£ 334,564,000.00
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Gross Profit
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-£ 356,524,800.00
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£ 51,500,000.00
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Operating Expenses
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£ 41,436,000.00
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£ 28,601,000.00
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Operating Incomes(any)
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£ 24,879,000.00
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£ 22,899,000.00
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Operating Profit
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-£ 373,081,800.00
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£ 45,798,000.00
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Profit Before Interest and Taxes
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£ 39,960,000.00
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£ 25,825,000.00
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Interest
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£ 1,809.00
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£ 1,647,000.00
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Taxes
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£ 1,839,997.00
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£ 1,839,997.00
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Profit After Tax (Net Profit)
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£ 38,118,194.00
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£ 22,338,003.00
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Year
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Gross Profit Ratio
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Amount
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Ratio
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2021
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Gross Profit
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-£ 356,524,800.00
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-7.6
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Sales
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£ 46,982,200.00
|
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2020
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Gross Profit
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£ 51,500,000.00
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13.34%
|
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Sales
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£ 386,064,000.00
|
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Year
|
Net Profit Ratio
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Amount
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Ratio
|
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2021
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Net Profit
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£ 38,118,194.00
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9.26%
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Sales
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£ 46,982,200.00
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2020
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Net Profit
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£ 22,338,003.00
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5.79%
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Sales
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£ 386,064,000.00
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Analysis
Gross profit and net profit ratio has been calculated for the company Amazon for the year 2020 and 2021. The gross profit of the company was higher in the year 2020 at the total rate of 13.34% as compared to that of 2021. The net profit ratio in the year 2021 was higher than 2020, the net profit ratio in the year 2021 was 9.26 %. The company can face profit related issues in the future, if the company will not increase the gross profit margin in the near future.
Reference
Awaysheh, A., Heron, R.A., Perry, T. and Wilson, J.I., 2020. On the relation between corporate social responsibility and financial performance. Strategic Management Journal, 41(6), pp.965-987.
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Xie, J., Nozawa, W., Yagi, M., Fujii, H. and Managi, S., 2019. Do environmental, social, and governance activities improve corporate financial performance?. Business Strategy and the Environment, 28(2), pp.286-300.
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