UNIVERSITY OF TECHNICAL EDUCATION BTEC HND IN BUSINESS (MANAGEMENT)

ASSIGNMENT COVER SHEET

NAME OF STUDENT REGISTRATION NO. UNIT TITLE ASSIGNMENT TITLE ASSIGNMENT NO NAME OF ASSESSOR SUBMISSION DEADLINE Phung My My B100079 Unit 6: Business Decision Making Forecasting Techniques and Business Decisions 2 of 2

I, _______________Phung My My___________ hereby confirm that this assignment is my own work and not copied or plagiarized from any source. I have referenced the sources from which information is obtained by me for this assignment.

________________________________ _________27/3/12________________ Signature Date

----------------------------------------------------------------------------------------------------------------

FOR OFFICIAL USE

Assignment Received By: Date:

BDM Assignment 2 QCF Feb 2012 CC

Unit Outcomes
Outcome Evidence for the criteria Feedback Assessors decision
First Re-

Internal Verification

Produce graphs using spreadsheets and draw valid conclusions based on the information derived

3.1

Be able to produce information in appropriate formats for decision making in an organisation al context LO3

Create trend lines in spreadsheet graphs to assist in forecasting for specified business information Prepare a business presentation using suitable software and techniques to disseminate information effectively

3.2

3.3

Produce a formal business report

3.4

Use appropriate information processing tools

4.1

Be able to use software generated information to make decisions in an organisation LO4

Prepare a project plan for an activity and determine the critical path

4.2

Use financial tools for decision making

4.3

Merit grades awarded

M1

M2

M3

BDM Assignment 2 QCF Feb 2012 CC

Outcome

Evidence for the criteria D1

Feedback D2

Assessors decision D3

Internal Verification

Distinction grades awarded

Assignment
( ) Well-structured; Reference is done properly / should be done (if any)

Overall, youve

Areas for improvement:

ASSESSOR SIGNATURE

DATE

NAME:.........................................................................................

(Oral feedback was also provided) STUDENT SIGNATURE NAME :..............................................................................

FOR INTERNAL USE ONLY VERIFIED YES NO DATE NAME : .......................................................................... : ...........................................................................

DATE

VERIFIED BY : ...........................................................................

BDM Assignment 2 QCF Feb 2012 CC

SCENARIO
1.

Forecasting Techniques

Ponds Ltd manufactures wide range of products such as Cold Cream Cleanser, Hydro Nourishing Cream, Nourishing Anti-Wrinkle, Triple Action Moisturiser, AntiWrinkle, anti-sagging, and anti-age spots including sun cream. Phuong is its Sales Director and wishes to take stock of the companys position with respect to sales of sun cream. You are employed as the companys Sales Manager and she has called on you to conduct an analysis of the last four years sales of sun cream, which were as follows (in $000s) Year 2008 2009 2010 2011 Q1 278 302 318 402 Q2 288 308 334 424 Q3 136 198 212 282 Q4 340 360 384 474

N.B. The company financial year ends on 31st December Tasks:

Enter the above sales figures into a computer spreadsheet, and then enter suitable formulae in the spreadsheet calculates all the figures required to make a time series analysis of the data including forecasts for the financial year 2012. Phuong has asked you to do this using both the additive model and the proportional model. Ms Thuy Chinh, the companys Marketing Director, has asked Phuong to obtain the forecasts for 2012 using the least squares regression method, as he claims it gives a much better idea of the likely reliability of the forecasts produced. Produce graphs using spreadsheets and draw valid conclusions based on the information derived (3.1, 3.2) Prepare a sales presentation material using suitable software and techniques to disseminate information effectively and persuasively. Write a report to Phuong, summarizing your sales forecasts for the year 2012 using each of three methods; commenting on the reliability of your forecast sales figures for the year 2012, suggesting which method is likely to be more reliable. (Attach presentation material at the end of the above report) (3.3, 3.4)

2. Management Information Systems

Ponds Ltd has the various functional departments such as Production/Manufacture, Dispatch and transport, Marketing and Sales, Finance and Personnel. The company currently relies on paper-driven systems but it is considering introducing a comprehensive computerised system for its Management Information Systems (MIS). In the light of the three categories of management information strategic,
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tactical and operational; and considering both internal and external information for decision making requirement, you are required to: Use appropriate information processing tools for Ponds Ltd (4.1)

3. Project Plan
Ponds Ltd has decided to run a short marketing training course for their personnel. You have been asked to project manage the initiative. You have identified the key activities required for the project, shown below: Key Activities for Planning Marketing Training Course Activity Description Preceding Activity A Agree course outline and publicity B Identify suitable tutors C Agree detailed course structure B D Circulate publicity and application forms A E Agree contract with tutors F Select participants E G Send confirmation to participants D H Agree teaching material F, G I Prepare teaching material J Prepare venue for event G K Run programme Task: You are required to: Prepare a project plan for an activity and determine the critical path based on information given above (4.2) Duration 8 4 12 12 4 2 4 4 10 2 I, J H B C, (Weeks) A

4. Investment Appraisal Techniques

Ponds Ltd is investigating the possibility of investing in a new automated machinery. There are two possibilities, each machine having an expected life of five years, and they would be depreciated using the straight-line method. There is no expected scrap value for any of the machines. The companys cost of capital is 12% and the details are given below: Year 0 Year 1 Year 2
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Machine A ($) (300) 80 100

Machine B ($) (304) 160 120

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Year 3 Year 4 Year 5 Tasks:

120 120 160

100 80 60

Use financial tools for decision making such as NPV and IRR methods to evaluate the viability of proposed investments (4.3)

Note: Write a report which must include the following:

Demonstrate all the tasks and tested assessment criteria in the assignment Use appropriate application software such as spread sheets, presentation, and word-processing packages; If suitable use appropriate project management software would also be useful; Start each task an appropriate headings and sub-headings; Have well-summarized findings of the investigation. Include conclusions and recommendations against each tasks; You must be submitted as hard copies and in electronic form (CD) for checking.

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Grading Pass is achieved by meeting all the requirements defined in the assessment criteria. (Refer page 2 of the assignment brief) Merit Identify and apply strategies to find appropriate solutions (M1)

Characteristics / Possible Evidence relevant theories and techniques have been applied for project plan such as network diagram and Gantt chart to identify critical path for the given project, financial tools and also effective judgements have been arrived. Select/design and apply appropriate methods/techniques (M2)

Characteristics / Possible Evidence the design of techniques justified, a range of sources of information used and the selection of methods and techniques have been justified for the forecasting for the given organisation. Present and communicate appropriate findings (M3)

Characteristics / Possible Evidence report shows a logical structure with clearly presented data and explained sections related to each tasks set in this brief. Use appropriate tables, charts, diagrams widely. Distinction Use critical reflection to evaluate own work and justify valid conclusions (D1) Characteristics / Possible Evidence synthesis has been used to generate and justify valid conclusions to project plan and also valid business decision arrived using of financial tools such as NPV and IRR. Take responsibility for managing and organizing activities (D2)

Characteristics / Possible Evidence Ability to show with evidence the areas of substantial activities have been planned, managed and organised and independence demonstrated in the forecasting based on the given information. Demonstrate convergent, lateral and creative thinking (D3)

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Characteristic / Possible Evidence - The generation of ideas with systematic approach and decisions taken related to sales forecasting, appropriate information processing in the given organisation.

PRESENTATION
1.

The assignment should have a cover page that includes the assignment title, assignment number, course title, module title, Lecturer/tutor name and students name. Attach all the pages of assignment brief/cover sheet with your report and leave them blank for official use.

2. Ensure that authenticity declaration has been signed. 3. This is an individual assignment. 4. Content sheet with a list of all headings and page numbers. 5. A fully typed up professionally presented report document. Use 12 point Arial or Times New Roman script.
6.

Your assignment should be word-processed. Charts, tables, graphs are not included in the word count. A CD should be included with references and accompanying notes.

7. Use the Harvard referencing system. 8. Exhibits/appendices are outside this limit. 9. The assignment should be not contain a bibliography but should contain a list of any references used in the assignment. NOTES TO STUDENTS FOR SUMMISSION Check carefully the submission date and the instructions given with the assignment. Late assignments will not be accepted. Ensure that you give yourself enough time to complete the assignment by the due date. Do not leave things such as printing to the last minute excuses of this nature will not be accepted for failure to hand-in the work on time. You must take responsibility for managing your own time effectively. If you are unable to hand in your assignment on time and have valid reasons such as illness, you may apply (in writing) for an extension. Failure to achieve a PASS grade will results in a REFERRAL grade being given.
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Take great care that if you use other peoples work or ideas in your assignment, you properly reference them in your text and any bibliography. NOTE: If you are caught plagiarizing, the University policies and procedures will apply.

Content 1. Forecasting Techniques Tasks: Enter the above sales figures into a computer spreadsheet, and then enter suitable formulae in the spreadsheet calculates all the figures required to make a time series analysis of the data including forecasts for the financial year 2012. Phuong has asked you to do this using both the additive model and the proportional model. Ms Thuy Chinh, the companys Marketing Director, has asked Phuong to obtain the forecasts for 2012 using the least squares regression method, as he claims it gives a much better idea of the likely reliability of the forecasts produced. Produce graphs using spreadsheets and draw valid conclusions based on the information derived (3.1, 3.2) 10-14 Prepare a sales presentation material using suitable software and techniques to disseminate information effectively and persuasively. Write a report to Phuong, summarizing your sales forecasts for the year 2012 using each of three methods; commenting on the reliability of your forecast sales figures for the year 2012, suggesting which method is likely to be more reliable. (Attach presentation material at the end of the above report) (3.3, 3.4)..15-16 2. Management Information Systems Use appropriate information processing tools for Ponds Ltd (4.1)..17-18 3. Project Plan Prepare a project plan for an activity and determine the critical path based on information given above (4.2)19-21 4. Investment Appraisal Techniques Use financial tools for decision-making such as NPV and IRR methods to evaluate the viability of proposed investments (4.3).22

BDM Assignment 2 QCF Feb 2012 CC

(3.1, 3.2)Enter the above sales figures into a computer spreadsheet, and then enter suitable formulae in the spreadsheet calculates all the figures required to make a time series analysis of the data including forecasts for the financial year 2012. Phuong has asked you to do this using both the additive model and the proportional model. Ms Thuy Chinh, the companys Marketing Director, has asked Phuong to obtain the forecasts for 2012 using the least squares regression method, as he claims it gives a much better idea of the likely reliability of the forecasts produced. Produce graphs using spreadsheets and draw valid conclusions based on the information derived This is last four years sales of sun cream, which were as follows (in $000s) Year 2008 2009 2010 2011

Q1 278 302 318 402

Q2 288 308 334 424

Q3 136 198 212 282

Q4 340 360 384 474

The Least Square Regression Method:

Trend: least Squares Regression Method: Year 2008 Quarter 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 No.(X) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Data (Y) 278 288 136 340 302 308 198 360 318 334 212 384 402 424 282 474 Intercept (a) 237.26 Slope (b) 10.36 Trend (T)regression 237 248 258 268 279 289 299 310 320 331 341 351 362 372 382 393 S= YT 41 40 -122 72 23 19 -101 50 -2 3 -129 33 40 52 -100 81 S= Y/T 117% 116% 53% 127% 108% 107% 66% 116% 99% 101% 62% 109% 111% 114% 74% 121%

2009

2010

2011

In least squares regression method, the formula is Y (trend) = a + bx Which Y (trend) or T: The trend of business Y: Actual data
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X: Number a: The intercept which is calculated by the following formula: a =

y b x
n

b: The slope which is calculated by the following formula: b = Where n is the number of pairs of data. Regression After calculating these formulas by excel, the trend line is: Year 2008 Quarter Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Year No. Y 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 278 288 136 340 302 308 198 360 318 334 212 384 402 424 282 474 Trend 237 248 258 268 279 289 299 310 320 331 341 351 362 372 382 393

n xy x y n x 2 ( x )
2

2009

2010

2011

Seasonal variation 41 40 -122 72 23 19 -101 50 -2 3 -129 33 40 52 -100 81

117% 116% 53% 127% 108% 107% 66% 116% 99% 101% 62% 109% 111% 114% 74% 121%

To find out the trend (T) from Y = a + bx Which x is the day of the four weeks from 0 to 15 y is the sales of each day a is the intercept of the line b is the slope of the line b= n xy x y n x 2 ( x )
2

= 10.36470588

a=

y b x = 237.2647059
n

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The equation of the line best fit: Y = 237.2647059 + 10.36470588x The slope: 10.36470588 The y-intercept: 237.2647059

Additive model The additive model for time series analysis of the data is Y = T + S + R Thus S = Y T - R However, R (the residual component) is small leading to it is negligible. Therefore, the equation of seasonal component is: o S=YT Q2 41 23 -2 40 25.5 25.5 Q3 40 19 3 52 28.5 28.5 Q4 -122 -101 -129 -100 -113 -113 Total 72 50 33 81 59 59

Q1 2008 2009 2010 2011 Average Last Adjustment

0 0

Forecasting for 2012 2012 Quarter Q1 Q2 Q3 Q4 No.(X) 16 17 18 19 Trend(T) 403 413 424 434 Season(S) 26 29 -113 59 Forecast(T+S) 429 442 311 493 1,675

Total

Multiplicative model The multiplicative model for time series analysis of the data is: Y = T x S x R However, R (the residual component) is small bringing about it is negligible. Therefore, the equation of seasonal component is: o S=Y/T Q2 Q3 Q4 Total
12

Q1

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2008 2009 2010 2011 Average Residual Last Adjustment

117% 108% 99% 111% 108.75% -0.06%

116% 107% 101% 114% 109.50% -0.06%

53% 66% 62% 74% 63.75% -0.06%

127% 116% 109% 121% 118.25% -0.06%

400.25% -0.25% 400%

Forecasting for 2012 Quarter Q1 Q2 Q3 Q4 No.(X) 16 17 18 19 Trend(T) 403 413 424 434 Season(S) 109% 109% 64% 118% Forecast(T*S) 439 453 270 513 1,675

2012

Total

The moving average method:

We have 12 trend values and 11 periods, so average rise is: Average rise = =10.98

Year 2008

Quarter 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

No. 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Data (Y) 278 288 136 340 302 308 198 360 318 334 212 384 402 424 282 474

Moving total of quarter 1042 1066 1086 1148 1168 1184 1210 1224 1248 1332 1422 1492 1582

Trend (T)

S= Y-T

S= Y/T

2009

2010

2011

263.5 269 279.25 289.5 294 299.25 304.25 309 322.5 344.25 364.25 384.25

-127.5 71 22.75 18.5 -96 60.75 13.75 25 -110.5 39.75 37.75 39.75

52% 126% 108% 106% 67% 120% 105% 108% 66% 112% 110% 110%

Same with the least squares regression method, the moving average method has two models: The additive model: S=Y-T Year Q1 Q2 Q3 Q4
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2008 2009 2010 2011 Average Year Estimated Adjustment Final

22.75 13.75 37.75 24.75 Q1 24.75 0.4175 25.17

18.5 25 39.75 27.75 Q2 27.75 0.4175 28.17 Q3 -111.33 0.4175 -110.92

-127.5 -96 -110.5 -111.33 Q4 57.17 0.4175 57.58

71 60.75 39.75 57.17 Total -1.67 1.67 0.00

The trend on Q1 of 2012 is calculated by 384.25 (Trend of Q2 of 2011) + 10.98 ( Average rise) * 3 (3 quarters after- the number of quarter) = 417.19. Forecasting for 2012: 2012 Quarter 1 2 3 4 No (X) 16 17 18 19 Trend (T) 417.19 428.17 439.15 450.13 S=Y-T 25.17 28.17 -110.92 57.58 Y=S+T 442.36 456.34 328.23 507.71

Multiplicative model: The same calculation with the trend on Q1 of 2012 above Q1 108% 105% 110% 108% Q1 108% 0.8% 108% Q2 106% 108% 110% 108% Q2 108% 0.8% 109% Q3 52% 67% 66% 62% Q3 62% 0.8% 62% Q4 126% 120% 112% 119% Q4 119% 0.8% 120% Total

Year 2008 2009 2010 2011 Average Year Estimated Adjustment Final

397% Total 397% 3% 400%

Forecasting for 2012 2012 Quarter 1 2 3 4 No.(X) 16 17 18 19 Trend (T) 417.19 428.17 439.15 450.13 S=Y/T 108% 109% 62% 120% Y=T*S 451% 467% 272% 540%

Conclusion 2012 Q1 Q2 Q3 Additive model Y= T+S 429 442 311 Y= T*S 467.6 484.64 295.99 Moving average Y= T*S 439 453 270 Y= S+T 431.11 445.29 318.14
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Q4

493

563.39

513

498.61

Although both two methods are benefit, multiplicative model is more exact than additive model for predicting. Because multiplicative model which has constantly seasonal variations and the changing seasonal variations. It helps make effective decision. (3.3, 3.4)Prepare a sales presentation material using suitable software and techniques to disseminate information effectively and persuasively. Write a report to Phuong, summarizing your sales forecasts for the year 2012 using each of three methods; commenting on the reliability of your forecast sales figures for the year 2012, suggesting which method is likely to be more reliable. (Attach presentation material at the end of the above report) REPORT ON THE SALES FORCAST OF SUN CREAM IN 2012 AT PONDS LTD To : Ms. Phuong, sales director From : Ms. My, sales manager Date : 26 February 2012 I. Introduction This report details the result of the sales forecast in 2012 of Ponds Ltd. By using some method such as least squares regression and moving average method to calculate and find out the reliable method that should be chosen. II. Method The following methods are used: 1. Moving average method: a) Additive model b) Proportional model (Multiplicative model) 2. Least squares regression method: a) Additive model b) Proportional model (Multiplicative model) III. Finding By utilizing 4 methods above, the result of sales forecast is following: 1. The moving average method: a) Additive model: Quarter 2012 No.(X) 1 2 3 4 Trend (T) 16 17 18 19 S=Y-T 417.19 428.17 439.15 450.13 Y=S+T 25.17 28.17 -110.92 57.58 442.36 456.34 328.23 507.71

b) 2012

Multiplicative model: Quarter 1 2 3 4 No.(X) 16 17 18 19 Trend (T) 417.19 428.17 439.15 450.13 S=Y/T 108% 109% 62% 120% Y=T*S 451% 467% 272% 540%
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BDM Assignment 2 QCF Feb 2012 CC

2. The least squares method: a) Additive model: Forecasting for 2012: Quarter 2012 No.(X) 1 2 3 4 Trend (T) 16 17 18 19 S=Y-T 403 413 424 434 Y=T+S 26 29 -113 59 429 442 311 493

b) Multiplicative model: Forecasting for 2012: Quarter 2012 No.(X) 1 2 3 4 Trend (T) 16 17 18 19 S=Y/T 403 413 424 434 Y=T*S 109% 110% 64% 118% 438% 453% 270% 513%

IV. Conclusion Generally, there are several methods of finding a trend to apply. After checking both two methods, it is clear that the least squares regression method with the multiplicative model is accurate method than others and it is close and less variation. Therefore, using these methods will bring the right decision making for company.

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(4.1) Use appropriate information processing tools for Ponds Ltd The use of management information systems is essential to perform the tasks easily not only in each level but also in the whole firm. Besides that, we also cannot deny the use of technology in business to exchange internal and external sources effectively. Today, there are many paper-driven systems; the use appropriate information processing tools for Ponds Ltd for its levels will help Ponds Ltd have an effectively performance in working. Based on the information of the three categories of management information, these are appropriate information processing tools should be required and adopted: External communication: There are various ways to communicate with people through the internet. Internet connection can show and present the products and services externally with partners, suppliers, and customers. Through some internet tools such as mail, homepage website, chat Ponds Ltd can connect directly and uninterrupted with customers as well as popularize their brand name. Moreover, the internet system help customers search the information about the Ponds Ltd, they are also useful in contact and information exchanging such as survey making, online meeting and brand new products advertising.
a)

Internal connection: Intranet systems among departments can helps employees among departments communicate and share information quickly.
b)

Management Support System (MSS): It provides the vision to maximize control over operations. The MSS has four facets of functionality with featuring a graphical manager interface based on internet browser technology: On-line manual, Data browser, Productivity reporting, Workload analyzer. The system allows user look at a real-time report or know clearly the details of a particular order, receipt, SKU, etc. The MSS gives feedback on the operations so manager can make quick and informed decisions because it supports analysis and great volumes of data condensed into a form. Therefore, manager should be able to meet the requirements of the majority of customers. Office Automation Systems (OAS) is configurations of networked computer hardware and software. It makes office work more efficient and increases productivity by increasing the productivity of data and information workers. Types of functions integrated by OAS include: electronic publishing, electronic communication, electronic collaboration, image processing, and office management which is often a local area network (LAN) at the heart of these systems. The LAN allows users to transmit voice, data, mail, and images across the network to any destination, whether that destination is in the local office on the LAN. Decision Support Systems (DSS) are used by management to aid in making decision on issues that are unstructured, with high levels of uncertainty about the true nature of the problem. DSS include a range of systems from fairy simple information models based on spreadsheets to expert systems combine analyzes business data and presents it to make business decisions more easily. Enterprise resource planning (ERP) is computer software, which automates the operation of the staff of enterprises, manages and integrates the important parts of its business. An ERP
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management information system integrates areas such as planning, purchasing, inventory, sales, marketing, finance, human resources, etc. It facilitates the flow of information and control the associations to outside stakeholders Transaction Processing System (TPS) collects, stores, modifies and retrieves the transactions of an organization. It performs and records routine transactions. It settles transactions utilizing both batch processing and online processing. TPS tackles any event or activities, which affects to the working of the organization. For instances: the billing customers, placing orders, depositing checks etc. It contains a set of activities that help user manage the procedures for handling the needful transactions. It is suitable for internal and regular tasks.

http://dipak-knowledgestore.blogspot.com Based on the systems above, I have a table showing tools that are suitable for each level: Level Strategic Level Tactical Level Operational Level Processing Tools ESS (Executive Support System) ERP (Enterprise Resource Planning) MSS (Management Support System) OAS (Office Automation Systems) DSS ( Decision Support Systems) TPS (Transaction Processing System) ERP (Enterprise Resource Planning)

(4.2) Prepare a project plan for an activity and determine the critical path based on information given above
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Activity A B C D E F G H I J K

Description Agree course outline and publicity Identify suitable tutors Agree detailed course structure Circulate publicity and application forms Agree contract with tutors Select participants Send confirmation to participants Agree teaching material Prepare teaching material Prepare venue for event Run program

Duration (Weeks) 8 4 12 12 4 2 4 4 10 2 0

Preceding Activity A B A B C, E D F, G H G I, J

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The numbers are the expected durations in week. The critical path is A-B-C-F-H-I. Total expected duration = 8+ 4+ 12+ 2+ 4 + 10+ 0= 40 weeks

This means the expected completion time is 40 weeks

-

When calculating all activities float time, we have: Activity A = LF (2) ES (1) = 8 0 8= 0 Activity B = LF (3) ES (2) = 12 4 8 = 0 Activity C = LF (5) ES (3) = 24 12 12 = 0 Activity D = LF (6) ES (2) = 20 12 8 = 0 Activity E = LF (4) ES (3) = 24 4 12 = 8 Activity F = LF (7) ES (4) = 26 2 24 = 0 Activity G = LF (8) ES (6) = 24 4 20 = 0 Activity H = LF (9) ES (7) = 30 4 26 = 0 Activity I = LF (10) ES (9) = 40 10 30 = 0 Activity J = LF (10) ES (8) = 40 2 24 = 16 Activity K = LF (11) ES (10) = 40 0 40 = 0

The Gantt chart for the project

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(4.3) Use financial tools for decision-making such as NPV and IRR methods to evaluate the viability of proposed investments The net present value (NPV) method and the internal rate of return (IRR) method are two methods of using DCF techniques.
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 The NPV method: PV is calculated by the discounting formula

PV = S x (1/(1+r)^n ) S: the sum to be received after n times. r: the rate of return, here r = 18% n: number of time periods (years) NPV = PV (year 1) + PV (year 2) + + PV (year n) Initial cost To calculate NPV for Machine A we have: NPV = 80 x +100 x +120 x +120 x +160 x -300 = 103,61

The NPV of project A is higher than 0 so the project is profitable. R 0 0.02 0.04 0.06 0.08 0.1 0.12 0.14 0.16 0.18 0.2 0.22 0.24 0.26 0.28 0.3 $280.00 $243.41 $210.14 $179.84 $152.16 $126.84 $103.61 $82.27 $62.61 $44.48 $27.73 $12.21 ($2.17) ($15.54) ($27.97) ($39.56) NPV (A) $216.00 $190.69 $167.39 $145.91 $126.05 $107.66 $90.59 $74.71 $59.93 $46.13 $33.23 $21.15 $9.83 ($0.81) ($10.81) ($20.23) NPV (B)

The IRR method: IRR can be calculated by the formula: IRR = a% + [A/(A-B)*(a-b)]% Which:
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- a: is one interest rate - b: is other interest rate - A: is NPV at the interest a - B: is NPV at the interest b After calculating in excel we have the results as the following table: Rate Year No. Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 NPV IRR

12% Machine A ($) ($300) 80 100 120 120 160 $103.61 24%

Machine B ($) ($304) 160 120 100 80 60 $90.59 26%

According to the results of NPV and IRR, the Machine A has highest NPV methods ($103.61). Therefore, A is the most profitable and the best choice to be invested with the most positive NPV. Because NPV is a direct measure of the project is profitable in money terms and it is also most directly relates to the companys interest in higher cash flows.

References

BUSINESS ESSENTIALS, 2010, Business Decision Making, part B, Chapter 5, page 157, London: BBP Professional Education BUSINESS ESSENTIALS, 2010, Business Decision Making, part C, Chapter 6, page 183, London: BBP Professional Education BUSINESS ESSENTIALS, 2010, Business Decision Making, part C, Chapter 7, page 229, London: BBP Professional Education BUSINESS ESSENTIALS, 2010, Business Decision Making, part D, Chapter 8, page 271, London: BBP Professional Education Information process tool, available at: http://www.saga.vn/UngdungCNTT/MIS/408.saga

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