13/07/2020

Task1: Comparison of two competing investment projects in

private and public sector.

Initial Cost of both projects is

Project A: £20,000
Project B: £28,000

Cash Flow:

Years Project A Project B

Yr1 8,000 10,000
Yr2 12,000 10,000
Yr3 5,000 8,000
Yr4 4,000 9,000
Yr5 2,000 9,000

Net Present Value:

Cash Flow Present Value

Years DCF Factor
Project A Project B Project A Project B
Yr0 20,000 28,000 1 20,000 28,000
Yr1 8,000 10,000 0.909 7272 9092
Yr2 12,000 10,000 0.826 9912 8260
Yr3 5,000 8,000 0.751 3755 6008
Yr4 4,000 9,000 0.683 2732 6147
Yr5 2,000 9,000 0.621 1242 5589
Total 24,913 35,096
Net Present Value 4,913 7,096

Pay Back Period:

Cost of capital is 10%

Years Project A Project B

Capital Expenditure 20,000 28,000
Yr1 18,000 20,000
Yr2 22,000 20,000
Yr3 15,000 18,000
Yr4 14,000 19,000
Yr5 12,000 19,000

For Project A:

In first two years it gives £40,000 i.e. £18,000 in the 1 st year and for total
payback only £2,000 needed.
Name: Saneeta Arthur Sardar -1–
Enrolment No.: 4085
Unit 5: Managing Financial Principles and Techniques
 13/07/2020

So the payback period for Project A is

1 + 2000/18000 = 1 + 0.11 = 1.11years

For Project B

In first two years it gives £40,000 i.e. £20, 000 in the 1 st year and for total
payback only £8,000 needed.

So the payback period for Project B is

1 + 8000/20,000 = 1 + 0.4 = 1.4years

Key considerations for investment:

• Weight of time-value of money

• Pay back period

• Interest rate

Company do some comparison between different projects and try to find out
most effective and profitable project for the company, but Private Company
make investment considering different factors then public company.

Private Sector:

Take the example of Ali khan & Co Carpet manufacturer and exporter. It is a
private company of carpet manufacturing. They take the wool on credit from
suppliers and pay them back money with pre-settled interest rate within due
time. Project A is giving high returns soon after project starts. So Project A is
best suited for Ali Khan Co as its payback period is quicker as compare to
project B. Although it shows lower net present value but it give higher profit in
the beginning and company can payback all the money to suppliers and can
trade from the remaining amount. It is very necessary for every organisation
that the money they are investing in the project that will give quickest money
back In case of Ali Khan & Co the investment they have made will be
recovered with in 1 and half year.

Public sector:

In public sector company can not even rely on the financial information like
rate of return and pay back period etc, there are so many other issues needed
to be considered while making decision on choosing or rejecting any project. It
involve the delivery of goods and services by and for the government national,
regional local or municipal. (e.g. Companies house, HM Revenue & Hospitals
etc)

Name: Saneeta Arthur Sardar -2–

Enrolment No.: 4085
Unit 5: Managing Financial Principles and Techniques
 13/07/2020

Other Factors need to be take into account:

- Health and Safety (e.g. HM Revenue, Companies House)

- Geographical Location
- Government Polices
- Rate of Taxation
- Priorities
- Business Ethics
- Available Resource
- Grants
- Economic Development
- Ethical Issues

Public sector companies comparatively consider different thing and factors

while making investment in any project. For example Pak carpets, it import
carpets and hand looms from different countries. Project B is more suitable for
this public company. As they don’t have to pay anything to the shareholders
(from where it generate funds to invest in the project) until the end of the
project. Project B gives higher NPV as compare to Project A. Its payback
period is bit longer then project A but the profit rate is higher so more wise to
go for project B. In public companies most of the time money is taken from
outsider investors (i.e. shareholders). For this reason if a project will give
more return at the completion of the project will more beneficial for the
company.

Task2: Post Audit Appraisal and recommendation

A post audit of an investment decision should include an assessment of the

decision-making process, and the results, benefits, and outcomes of the
decision. It facilitates organizational learning and support continuous
improvement in the investment and implementation process. It assesses, after
the fact, the efficiency and effectiveness of an investment appraisal, and
management’s decision and implementation.

It should also include a review of assumptions made during the decision-

making process, for example assumptions on markets, technology,
competition, cost of capital, etc. Post audit monitors and evaluates the
progress of capital investment through comparing actual cash flows and other
costs and benefits with those originally projected. Where a review cannot
measure all cash flows generated by an investment project (for example
where it is not possible to split the impact of a project from the remainder of
an organization), relative success should be judged on a wider set of business
processes or program.

Name: Saneeta Arthur Sardar -3–

Enrolment No.: 4085
Unit 5: Managing Financial Principles and Techniques
 13/07/2020

Post Audit;

Introduction:
Ali khan & Co Carpet manufacturer and exporter is a private company of
carpet manufacturing. They take the wool on credit from suppliers and pay
them back money with pre-settled interest rate within due time. Company
have two different projects Project A with £20,000 and Project B with £28,000
capital.

Background:
In order to decide, which project is beneficial for the company, need to
evaluate and analyse the projects on the available data regarding the capital
expenditure and profits, the Net Present Value, Pay back period and Internal
rate of Return etc. The figures show that Project A is more suitable for Ali &
Co Carpet Manufacturers.

Performance Monitoring:
Once the project started, Internal Audit department and quality managers of
the company must monitor the performance of the staff and machinery and
must have a proper check on quality of the product on a regular basis through
day to day contact with the operating staff. A formal progress plan can be
prepared based on the monitoring.

Cost Benefit Analysis:

It’s a private sector company so the criteria of analysing and evaluating
projects will be different than in public sector. Project A is giving higher NPV
and quick payback period. As pay back period is quicker i.e. 1.1yr and rest of
the money will be profit for the company to invest in any other project for
capitalisation. Any project is considered good and can be recommended if its
cost is less then the benefit its gives in future.

Risk Mitigates:
To reduce the likelihood of these risks happening and to minimise the effect if
they do, the Company needs a very strong mechanism in place to monitor,
report, review and redirect (including acquiring additional resources) its
system and resources connected with the operating, performance of the
software to ensure that the maximum benefits are achieved.

Other Factors:

Technical:
advancement in technology, technical failure, etc.

Natural Disasters:
threats from weather, natural disaster, accident, disease, etc.

Political:
changes in tax regimes, public opinion, government policy, foreign influence, etc.

Name: Saneeta Arthur Sardar -4–

Enrolment No.: 4085
Unit 5: Managing Financial Principles and Techniques
 13/07/2020

Conclusion & Recommendation:

By using finance information and keeping above mentioned factors into
account post audit is very important tool for any organization. Post audit is
useful to do forecasting, to get clearer future picture of the company, if
company is planning to make some kind of long/short term investment then to
make judgments on basis. Post audit is necessary to do every year after
completion of the financial year. That will assist to compare with others. And
also gives a chance to make or rectify the mistakes if there any.

For Ali Khan & Co private limited:

In my opinion project A is more viable for this company.

 Net Present Value: £4,913

 Payback period: 1.11years
 Quick payback of the money invested.

For Pak carpets:

For Pak carpet plc I will recommend project B for following reasons

 Higher Net Present Value: £7,096

 Payback period: 1.4years
 Although not as Quick payback as compare to project A but according
to company’s policies and contracts with the investor there’s no need
for early payback. Company more interested on the profit rate.

Name: Saneeta Arthur Sardar -5–

Enrolment No.: 4085
Unit 5: Managing Financial Principles and Techniques