Global Business Project Appraisal and Financial Planning Assignment Sample

Global Business Economics: Budgeting, Investment Appraisal, and Financial Planning for Clark Cask Logistics Plc

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Business Economics & Finance In A Global Environment Assignment

1: Introduction

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In this assignment a detailed synopsis of the global business economics shall be conveyed thoroughly along with determining the relevant financial aspects existing in a global environment. The primary emphasis of this assignment shall be further provided for discussing the available budgeting approaches for a company to necessitate proper flow and management of financial records and expenses. In order to proceed with this assignment, necessary importance shall be further provided for discussing the investment appraisal techniques using the NPV, IRR, Payback and Discounted Payback methods. Subsequent numerical adherence and discussion on this assignment shall be weighed by considering the relevant and proposed income and expenditure budgets available for the company to consider. The company available for detailed analysis of this assignment is considered to be Clark Cask Logistics Plc (CCLP). Necessary recommendations shall also be offered to CCLP with regards to how finances could be monitored, whether investment in a new long-term project should be facilitated and selection of an appropriate budgeting approach.

2: Budgeting Approaches Available

The availability of budgeting approaches is considered to be a vital financial parameter for the company concerned CCLP for enhancing cost optimisation and long-term cost savings. As per explanations and illustrations of Schick (2018), the availability of budgeting approaches also ensures an organisation to cater market and industry pro longingness to enable durability and sustainability in the near and foreseeable future. Following is the detailed discussion of budgeting approaches available for the company concerned CCLP.

2.1: Rolling Budgeting

The primary budgeting approach that an organisation can facilitate is considered to be the rolling budgeting. As idealised and narrated by Ostaev et al. (2019), the main principle of employing rolling budgeting can be associated with updating the budget period on a rollover basis when the old or pre-existing budgeting period is completed. Hence, the feature or the principle of rollover aids an organisation to ensure that a particular budget is being used over a long time. Basic advantages attached with the application and implementation of the rolling budgeting can be considered as possessing a greater degree of flexibility in preparation. Thus, the preparation of rolling budgeting can aid the concerned managerial spearhead of CCLP to encourage and minimise essential operational costs over a prolonged period of time.

2.2: Activity Based Budgeting

In addition to the adherence to rolling budgeting, activity-based budgeting is also considered to be an important budgeting technique, which facilitates perpetual control and monitoring of financial resources for an organisation. As per illustrations and observations of Nikulina, Butyugina & Gorbunova (2019), the activity-based budgeting further regulates the way in which an organisation can control its finances and costs with respect to operational activities planned to be undertaken. Moreover, the activity-based budgeting is also considered to be a helpful tool as it necessitates cost allocations where maximum costs could be provided to products possessing a greater market demand. The application of this budgeting approach shall augur better financial aesthetics for CCLP to establish long-term profitability in the foreseeable future.

2.3: Top-Down Budgeting

In addition to the application of activity-based budgeting, the top-down budgeting approach can also be employed by organisations to facilitate proper cost planning and strategies (Wildavsky, 2018). The application of top-down budgeting by an organisation can be a complex yet fruitful one as involvement of all levels of an organisation is required to be followed. The budget is usually prepared by the top-level management of an organisation and it is further conveyed to all subordinates and existing levels of an organisation. The application of this budgeting approach shall also establish a higher degree of command and centralisation for CCLP to ensure reduction and obliteration of operational and ancillary costs.

2.4: Bottom Down Budgeting

Bottom-Down Budgeting is considered to be the fourth important budgeting approach where the relevant organisational body can also ensure harmonisation of cost savings in the near and distant future. Saguin (2019), expressed and viewed that bottom down budgeting can be considered as a polar opposite to the top-down budgeting where budgets are initially screened and prepared by the lower levels. Subsequent information and communication of the budget is then being relayed to the upper-level management of an organisation. The application of this budgeting approach shall further enable the management of CCLP to facilitate integrated budgeting preparation and presentation in a harmonised manner.

3: Investment Appraisal Techniques, Implementations and Computations

In order to facilitate the appropriate calculation of investment appraisal techniques, implementations and computations the following assumptions are being proposed.

  • It is assumed that the cash outflows include costs of replacement, cost of heavy goods vehicle and the costs of building as well as consider the initial cash outflow with respect to acquisition costs involved in equipment
  • Marginal Costing approach shall be subsequently followed with respect to adherence for variable costs, sales, fixed costs and their associated figures.
  • It is expected that the entire project duration shall consist of a total duration span of 20 years.

Computation of Cash Outflow

Cost of Budling

£ 35,00,000.00

Cost of Heavy Goods vehicle

£ 1,20,000.00

Cost of Replacement for Other Vehicles

£ 24,000.00

Cost of Other Equipment

£ 2,28,000.00

Total Expected Cash Outflows

£ 38,72,000.00

According to the above table of cash outflow calculations for Clark Casc Plc. It can be considered that the calculation of expected cash outflows has considered the values of building costs, heavy goods vehicle, replacement costs of other vehicles and costs of other equipment. Following is the detailed synopsis of the computation of cash inflows for the company concerned CCLP.

Computation of Cash Inflows (000)

Particulars

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Total

Sales

£ 1,865.02

£ 1,942.73

£ 2,023.68

£ 2,108.00

£ 2,129.00

£ 2,156.00

£ 2,170.00

£ 2,190.00

£ 2,214.00

£ 2,324.70

£ 2,440.94

£ 2,562.98

£ 26,127.05

Variable Costs

£ 399.00

£ 402.00

£ 405.00

£ 407.00

£ 409.00

£ 412.00

£ 416.00

£ 400.00

£ 422.00

£ 423.00

£ 418.00

£ 417.00

£ 4,930.00

Contribution Margin

£ 1,466.02

£ 1,540.73

£ 1,618.68

£ 1,701.00

£ 1,720.00

£ 1,744.00

£ 1,754.00

£ 1,790.00

£ 1,792.00

£ 1,901.70

£ 2,022.94

£ 2,145.98

£ 21,197.05

Fixed Costs

£ 12,356.00

£ 689.33

£ 689.33

£ 689.33

£ 689.33

£ 689.33

£ 689.33

£ 689.33

£ 689.33

£ 689.33

£ 689.33

£ 689.33

£ 19,938.67

Profits (Cash Inflows)

-£ 10,889.98

£ 851.40

£ 929.35

£ 1,011.67

£ 1,030.67

£ 1,054.67

£ 1,064.67

£ 1,100.67

£ 1,102.67

£ 1,212.37

£ 1,333.60

£ 1,456.65

£ 1,258.39

According to the above table of cash inflows calculation for Clark Casc Plc. It can be considered that the value of cash inflows or profits is considered to be GBP 1258.39 on an annual basis. The calculated value of cash inflow on an annual basis is considered to remain uniform for all twenty years of the project. Following is the detailed synopsis of the investment appraisal techniques using, NPV, IRR, Payback and Discounted Payback methods.

Calculation of Investment Appraisal (000)

Years

Cash Flows

Discounting Factor @ 9%

Discounted Cash flows

Cumulative Discounted Cash Flows

Cumulative Cash Flows

0

-£ 3,872.00

£ 1.00

-£ 3,872.00

-£ 3,872.00

-£ 3,872.00

1

£ 1,258.39

£ 0.90

£ 1,134.71

-£ 2,737.29

-£ 2,613.61

2

£ 1,258.39

£ 0.81

£ 1,023.18

-£ 1,714.11

-£ 1,355.22

3

£ 1,258.39

£ 0.73

£ 922.62

-£ 791.50

-£ 96.83

4

£ 1,258.39

£ 0.66

£ 831.93

£ 40.44

£ 1,161.56

5

£ 1,258.39

£ 0.60

£ 750.17

£ 790.60

£ 2,419.95

6

£ 1,258.39

£ 0.54

£ 676.43

£ 1,467.04

£ 3,678.34

7

£ 1,258.39

£ 0.48

£ 609.95

£ 2,076.99

£ 4,936.73

8

£ 1,258.39

£ 0.44

£ 550.00

£ 2,626.99

£ 6,195.12

9

£ 1,258.39

£ 0.39

£ 495.94

£ 3,122.93

£ 7,453.51

10

£ 1,258.39

£ 0.36

£ 447.20

£ 3,570.13

£ 8,711.90

11

£ 1,258.39

£ 0.32

£ 403.24

£ 3,973.37

£ 9,970.29

12

£ 1,258.39

£ 0.29

£ 363.61

£ 4,336.98

£ 11,228.68

13

£ 1,258.39

£ 0.26

£ 327.87

£ 4,664.86

£ 12,487.07

14

£ 1,258.39

£ 0.23

£ 295.65

£ 4,960.50

£ 13,745.46

15

£ 1,258.39

£ 0.21

£ 266.59

£ 5,227.09

£ 15,003.85

16

£ 1,258.39

£ 0.19

£ 240.39

£ 5,467.48

£ 16,262.24

17

£ 1,258.39

£ 0.17

£ 216.76

£ 5,684.24

£ 17,520.63

18

£ 1,258.39

£ 0.16

£ 195.46

£ 5,879.69

£ 18,779.02

19

£ 1,258.39

£ 0.14

£ 176.24

£ 6,055.94

£ 20,037.41

20

£ 1,258.39

£ 0.13

£ 158.92

£ 6,214.86

£ 21,295.80

Net Present Value

£ 6,214.86

Discounted Payback

4.03

Payback Period

4.92

Internal Rate of Return

32%

Average Rate of Return

32.50%

According to the above table of investment appraisal using, NPV, IRR, Payback and the discounted payback method, the net present value has been calculated as GBP 6214.86. Subsequently, the discounted payback period and the payback period have been calculated as 4.03 and 4.92 years respectively. Moreover, the Internal rate of return and the accounting rate of return has been calculated as 32% and 32.50% respectively. Hence, as per the detailed aesthetics of the project investment appraisal favourable measurements have been witnessed with regards to potential commencement and implementation of the project. Following is the detailed synopsis of the income and expenditure budgets prepared for Clark Cask Logistics Plc.

4: Proposed Income and Expenditure Budgets

Budget for the year ending April 30th 2023 of refrigerated goods division

SALES UNITS

Jan (£)

Feb (£)

Mar (£)

Apr (£)

May (£)

Jun (£)

Jul (£)

Aug (£)

Sep (£)

Oct (£)

Nov (£)

Dec (£)

TOTAL (£)

Total Sales Units

4417

4858.7

5344.57

5879.027

6466.9297

7113.62267

7824.984937

8607.483431

9468.231774

10415.05495

11456.56045

12602.21649

Sales value of per unit

Funds from Owners

1520

INCOME

Total Sales volume

2,20,850

2,42,935

2,67,229

2,93,951

3,23,346

3,55,681

3,91,249

4,30,374

4,73,412

5,20,753

5,72,828

6,30,111

47,22,719

Actual Income

Received Cash/Same Month 20%

44170

48587

53445.7

58790.27

64669.297

71136.2267

78249.84937

86074.83431

94682.31774

104150.5495

114565.6045

126022.1649

9,44,544

Received in 30 days 25%

55212.5

60733.75

66807.125

73487.8375

80836.62125

88920.28338

97812.31171

107593.5429

118352.8972

130188.1869

143207.0056

157527.7061

11,80,680

Received in 60 days 25%

55212.5

60733.75

66807.125

73487.8375

80836.62125

88920.28338

97812.31171

107593.5429

118352.8972

130188.1869

143207.0056

157527.7061

11,80,680

Received in 90 days

66255

72880.5

80168.55

88185.405

97003.9455

106704.3401

117374.7741

129112.2515

142023.4766

156225.8243

171848.4067

189033.2474

14,16,816

TOTAL INCOME

220850

242935

267228.5

293951.35

323346.485

355681.1335

391249.2469

430374.1715

473411.5887

520752.7476

572828.0223

630110.8245

47,22,719

Year to Date

66255

72880.5

80168.55

88185.405

97003.9455

106704.3401

117374.7741

129112.2515

142023.4766

156225.8243

171848.4067

189033.2474

14,16,816

Moving Monthly Average

102695.25

112964.775

124261.2525

136687.3778

150356.1155

165391.7271

181930.8998

200123.9898

220136.3887

242150.0276

266365.0304

897441.1079

28,00,504

COST OF SALES

Casual Staff

50

110

140

45

65

45

25

95

85

65

15

26

766

Fuel and Oil

150

155

165

145

154

178

142

126

129

124

145

195

1,808

Staff training cost

18.75

18.75

18.75

18.75

18.75

18.75

18.75

18.75

18.75

18.75

18.75

18.75

225

Administrative staff training cost

1375

1375

1375

1375

1375

1375

1375

1375

1375

1375

1375

1375

16,500

Gas and electricity supplies (fixed cost)

15000

15000

15000

15000

15000

15000

15000

15000

15000

15000

15000

15000

1,80,000

Depot operatives’

22.9

22.9

22.9

22.9

22.9

22.9

22.9

22.9

22.9

22.9

22.9

22.9

275

Sub-Total Cost of Sales

16617

16682

16722

16607

16636

16640

16584

16638

16631

16606

16577

16638

1,99,574

EXPENDITURE

Building maintenance

7000

7000

7000

7000

7000

7000

7000

7000

7000

7000

7000

7000

84,000

Vehicle maintenance cost

150

150

150

150

150

150

150

150

150

150

150

150

1,800

Building depreciation

4666.7

4666.7

4666.7

4666.7

4666.7

4666.7

4666.7

4666.7

4666.7

4666.7

4666.7

4666.7

56,000

vehicle insurance costs

200

200

200

200

200

200

200

200

200

200

200

200

2,400

other vehicles cost

6400

6400

6400

6400

6400

6400

6400

6400

6400

6400

6400

6400

76,800

average salary of operatives

153583

153583

153583

153583

153583

153583

153583

153583

153583

153583

153583

153583

18,43,000

drivers’ salary

2917

2917

2917

2917

2917

2917

2917

2917

2917

2917

2917

2917

35,000

Bonus of staff

768

768

768

768

768

768

768

768

768

768

768

768

9,215

TOTAL EXPENSES

175685

175685

175685

175685

175685

175685

175685

175685

175685

175685

175685

175685

21,08,215

CASH SURPLUS/DEFICIT

28548.75

50569

74822

101660

131026

163357

198981

238052

281096

328462

380567

437789

24,14,930

The culminating value of profitability achieved by consideration of total cost of sales and revenues is thus considered to be GBP 21,08,125. Khalifa, & Scarparo (2021) narrated and idealised that business projections, usually deploy a significant importance on the business expansion avenues, which is usually substantiated based on lower and optimised costs and prospects of high revenue generating attributes. Moreover, the concerned managerial spearhead of CCLP is also required to keep leeway for making amendments in the budget for suiting best and plausible organisational aesthetics and dynamics. Financial crises are also needed to be considered by the concerned management of CCLP for mitigating potential financial risks in the near and foreseeable future.

5: Conclusion

In this assignment, a detailed synopsis of budgeting approaches has been covered wit respect to activity based, top and bottom down and rolling budgeting. Further importance has been provided on determining the capital budgeting or investment appraisal techniques, which consists of NPV, IRR, Payback and discounted payback methods where favourable propositions have been witnessed. Subsequently, the computation of expenditure and income budget for refrigerated goods division has been conducted where cash surpluses have been established in abundance. Adherence to future risks and making necessary amendments is also needed to be considered by the management of CCLP for ensuring better financial aesthetics in the near and foreseeable future.

6: Recommendations

R1: It is recommended to Identify Cost Monitoring Prospects

The primary recommendation proposed to CCLP consists of identification of cost monitoring prospects. The identification of cost monitoring prospects shall further enable the organisation to determine where costs could be saved and what necessary activities could be conducted that would lead to high turnover generation.

R2: It is recommended to choose Activity-based optimise costs

The second recommendation proposed to the concerned management of CCLP is considered to be related with choosing activity-based budgeting approaches for optimising costs. The selection of activity budgeting shall enable the company to locate potential high demanded products and allocate costs accordingly. Moreover, the production planning phase for low demanded products can be minimised for saving costs and other operational resources.

R3: It is recommended to employ strategic planning for establishing higher accord in future operations.

The employment for strategic planning for achieving higher accord in future operations is mostly considered to be in line as per the investment appraisal criteria. As the NPV is positive, it is recommended to select the project and establish credible future operational planning to nullify spillage of costs. Hence, it is recommended that the new project being appraised and calculated is needed to be selected as it contains the prospects of higher future revenue generation.

References

  • Khalifa, R., & Scarparo, S. (2021). Gender Responsive Budgeting: A tool for gender equality. Critical Perspectives on Accounting, 79, 102183. https://doi.org/10.1016/j.cpa.2020.102183
  • Nikulina, S. N., Butyugina, A. A., & Gorbunova, E. E. (2019, October). Investment activity in conditions of automation use of budgeting system. In IOP Conference Series: Earth and Environmental Science (Vol. 341, No. 1, p. 012217). IOP Publishing. doi:10.1088/1755-1315/341/1/012217
  • Ostaev, G. Y., Gogolev, I. M., Kondratiev, D. V., Markovina, E. V., Mironova, M. V., Kravchenko, N. A., & Aleksandrova, E. V. (2019). Strategic budgeting in the accounting and management system of agricultural enterprises. Indo American Journal of Pharmaceutical Sciences, 6(4), 8180-8186. https://elibrary.ru/item.asp?id=37284415
  • Saguin, K. (2018). Why the poor do not benefit from community-driven development: Lessons from participatory budgeting. World Development, 112, 220-232. https://doi.org/10.1016/j.worlddev.2018.08.009
  • Schick, A. (2018). Budgeting for results: recent developments in five industrialized countries. Performance-based budgeting, 129-146. https://www.taylorfrancis.com/chapters/edit/10.4324/9780429498411-9/budgeting-results-recent-developments-five-industrialized-countries-allen-schick
  • Wildavsky, A. (2018). Budgeting as a political process. In The Revolt Against the Masses (pp. 338-349). Routledge. https://www.taylorfrancis.com/chapters/edit/10.4324/9781351302920-19/budgeting-political-process-aaron-wildavsky
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