MBA 401 - Accounting for Decision Makers Assignment 03 Investment appraisal of a project 1

Master of Business Administration (MBA) University of Wales Institute, Cardiff MBA Batch 01

M.A.C. Madanayake (UWIC/MBA/MT/01/49)

Accounting for Decision Making

Shareholders Report Of Bluewaters PLC (Financial viability of a new project)

MBA 401 - Accounting for Decision Makers Assignment 03 Investment appraisal of a project 2

Scenario The Company by the name of Bluewater Plc has been in the business of manufacturing and sale of high quality Yoghurt and curd. The prices of the products manufactured by the company are higher than the other products available in the market. The company is now considering to produce a new low price yoghurt & the main intention of the introducing this product is to attract low and medium income earners to buy the products of the company. Introduction This report is prepared to examine and show the business collision of a project to manufacture and market new low price yoghurt to low & medium income earners. Investment appraisal Capital investment or capital expenditure means spending money now in the hope of getting it back later through future cash flows. The process of evaluating or appraising potential investments is to: generate ideas based on opportunities or identifying solutions to problems; research all relevant information; consider possible alternatives; evaluate the financial consequences of each alternative; assess non-financial aspects of each alternative; decide to proceed; determine an implementation plan and implement the proposal; control implementation by monitoring actual results compared to plan.

MBA 401 - Accounting for Decision Makers Assignment 03 Investment appraisal of a project 3

a) If the required rate of return of the management is 12%, compute the Net Present Value of the project? Years 1 2 3 4 5 6 7 8 9 10 Total PV Less initial investment Less investment end of year 1 Less working capital investment end of year 1 Add recovery of working capital end of year 10 Net Present Value 12% PV Factor 0.892 0.797 0.711 0.635 0.567 0.506 0.452 0.403 0.361 0.321 Inflow 0 2,500,000 3,000,000 3,500,000 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000 PV

0 1,992,500 2,133,000 2,222,500 2,268,000 2,024,000 1,808,000 1,612,000 1,444,000 1,284,000 16,788,000 2,000,000 0.892 8,000,000 7,136,000 7,652,000 0.892 3,000,000 0.321 3,000,000 2,676,000 963,000 5,939,000

b) Based on Financial criteria, the project can be recommended in view of the fact that positive NPV of 5,939,000. c) According to above Calculations in 4th year NPV should be positive 2,222,500 and project should be acceptable. d) Sri Lanka have to grow in the scenario of globalization. The emerging economies will take the lead role and Asia will drive the economic growth. We need to leverage globalization advantages and build closer integration with open and liberal trade policies to capture markets. Over 50 percent of

MBA 401 - Accounting for Decision Makers Assignment 03 Investment appraisal of a project 4

global trade is from regional trade agreements. South Asia is a more vibrant region in economic growth and robust reduction in poverty line. Sri Lanka well placed to derive greater advantage in globalization process. Closer economic integration in the South Asian region is vital. Sri Lanka recovered from the global crisis and are poised to accelerate economic growth. The forecasted growth for Sri Lanka for this year is 7 percent while India will be looking at a growth rate of 9.5 percent. Sri Lanka is having a great advantage to grow in tourism sector and lot of consumer demand will grow with economy enhance after the war ends.

Conclusion Low Price Yoghurt project is financially viable & ; however company needs to focus on other factors as discussed above before making the final decision.

REFERENCES: 1. Paul M. Collier : Accounting for Managers, Aston Business School, Aston University, Copyright 2003, John Wiley & Sons Ltd. 2. http://www.investopedia.com/terms/c/costofcapital.asp 3. http://www.lankanewspapers.com/news/2010/7/58682.html