PARTH KHANNA -

30048368

INTERNATIONAL
FINANCE MODULE

ANALYSIS OF SHEFFIELD HALLAM

UNIVERSITY –
INTERNATIONAL GLOBAL MBA

25TH FEBRUARY, 2021

FINANCIAL STRUCTURE
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This portfolio focuses on the potential involved in capital investment appraisal techniques
(CIAT), various types of risks involved to be considered while investing and my personal
views on the same and the Gibbs reflective model for learning.

PART I

There are three different investments in various different countries as stated below: -

Investment A is a 50% investment in a British manufacturing company and 50% in a Korean

company; Investment B is a 100% investment in a Chinese manufacturing company while
Investment C is a 100% investment in an Indian manufacturing company.

Investment A Investment B Investment C

Sales 20X9 200,000 0 100,000

Sales 20X0 200,000 3,000,000 300,000
Sales 20X1 300,000 3,000,000 500,000
Sales 20X2 250,000 3,100,000 600,000
Sales 20X3 700,000 7,100,000 1,000,000
Sales 20X4 800,000 7,100,000 1,200,000
Sales 20x5 300,000 7,100,000 1,500,000
Sales 20X6 50,000 4,500,000 1,600,000

Initial cost 1,000,000 8,000,000 4,000,000

Value on 20X6 0 3,000,000 2,500,000

COGS 20% 40% 45%

Tax on profit 10.00% 20.00% 5.00%

Discount factor 15 16 5

To understand an investment project’s profitability, a series of cash inflows and outflows is

looked upon, using simple and complex calculations by non-discounted and discounted
Investment appraisal techniques (IAT).
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Non-Discounted Techniques

Payback Period (PBP) – Payback period is calculated as the length or amount of time taken to
recover the initial cash outflow or initial investment.

Looking at Appendix A, calculating the profitability for ‘Investment A’ through payback

period, the initial investment of one million will be recovered in 20X3th Period (5th year) or in
4.63 years approximately. In Appendix B, the initial ‘Investment B’ of eight million can be
recovered in 20X4th Period or in 5.07years while in Appendix C, the initial four million
‘Investment C’ can be recovered in 20x6th Period or in 7.4 years.

Logically, shorter the payback period, better the investment would be, to recover the invested
money as soon as possible. Therefore, investment A would be better here, as the initial
investment would take less than five years to recover. Also, the sooner invested cash is
returned, sooner it can be reinvested in other projects (Watson et al., 2019). 

Major drawbacks for using this investment appraisal technique are that it ignores the time
value of the money, different investments can have same payback periods by ignoring the
cash flow in each year and it ignores all the cash inflows after the payback period and
therefore it does not tell us the exact returns of an organisation as a whole (Watson et al.,
2019). Like Investment B has zero cash inflow in the first year, still the initial money
recovered is close to approximately 5 years in both investment A & B. Also, the profit
recovered in 8 years is purely ignored here as investment A, B & C have an approximate
profit (money left after tax and investments) of 1.0 million, 11.2 million and 2.1 million
respectively.

Accounting Rate of Return (ARR) – It is the percentage rate of return which can be expected
from an investment in a project or asset, as compared to the initial investment, which is used
to calculate and examine the capital budgeting. It can be calculated as the average annual
profit by the average investment (Murphy, 2020).
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Investment A, B & C have the ARR at 50.40%, 43.53% & 22.80% respectively (Look
Appendix A, B & C). The investment A has the highest return on the capital employed i.e.,
50.40%. Unlike payback period, returns on capital employed on altogether investments
covers all cash inflows arising during the lifetime of the project.

This approach does not have a clear objective or aim to maximize the wealth of shareholders
and uses accounting profit, which can be open for manipulation (Watson et al., 2019). As it
uses average profit, the time value of the money gets ignored and in turn results in the equal
weight of the profit in individual years. In Appendix A & B, although, investment A has the
highest ARR, it does not have a smooth and gradual increase in profits, like first four years of
profit is almost same with little ups and down, but Year 5 & 6 see more than 200% increase
and suddenly dropping in Year 7 & 8. Whereas, investment B has a smooth pattern of cash
inflows which shows the gradual increase in year-on-year profits. Therefore, here investment
B seems to be more feasible.

Discounted Techniques

Net Present Value (NPV) – “Net present value is the present value of the cash flows at the
required rate of return of your project compared to your initial investment,” says Knight. In
practical terms, it’s a method of calculating your return on investment, or ROI, for a project
or expenditure (Gallo, 2014). By looking at the all the money we can make in the future we
can invest in a project by knowing its present value.

The net present value for each of the investments A, B & C is 71,540, 431,056 & 284,120
respectively (look Appendix A, B & C). Although, outcomes of all the investments are
positive, they are good for investment purpose as this technique involve the time value of the
money, takes the account of all the relevant cash flows happening in the whole cycle of the
project (Watson et al., 2019). Investment B has the highest NPV value, and can be looked
upon with the best investment among the other three, but in case of mutual exclusive
investment, the best project is later explained in this report in profitability index and capital
rationing.
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The net present value is hard to calculate as As Knight writes in his book, Financial
Intelligence, “the discounted value of future cash flows — not a phrase that trips easily off
the nonfinancial tongue”. Still, he says, it is still worth to calculate because it is more
superior. He writes, “any investment that passes the net present value test will increase
shareholder value, and any investment that fails would (if carried out anyway), actually hurt
the company and its shareholders” (Gallo, 2014). As the NPV is based on cost of capital or
discounted technique, there is a lot of room for errors.

Internal Rate of Return (IRR) - – It is the rate of return, r, that equates the present value (PV),
of a sum Rn, to be had n period in the future with the sum, I (invested amount) i.e. (Dudley,
1972)

PV = I = Rn / (1+r) ^ n

The internal rate of return for the investments A, B & C are 16.89%, 17.20% & 6.50%
respectively (look Appendix A, B & C). The results of IRR are more than their respective
cost of capitals thus all the projects are good for investment. According to definition,
Investment B has the highest IRR and can be considered with a better investment
opportunity.

Projects with high initial cash outflow and high cash inflows could have higher NPV as
compared to small companies with low initial cash outflow, thus making it difficult to choose
the investment project (Watson et al., 2019). Also, highest NPV method is more feasible than
highest IRR method, as higher the NPV, better it will be for the shareholders wealth (Watson
et al., 2019). Thus, here, investment B (as stated above) can be a better option for investing as
in turn it is also benefitting the shareholders wealth.

Capital Rationing (CP) and Profitability Index (PI) – Capital rationing arises when there is
insufficient capital to invest in all available projects which have a positive NPVs i.e., capital
is a limiting factor whereas PI represent the relation between costs and benefits of projects
(Chen, 2020). As we know, companies with Profitability index greater than one(value) or the
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highest value (in case of capital rationing) is considered a good option for investment. The PI
for investments A, B & C are 1.072, 1.054 & 1.071 (look Appendix A, B & C). Although, all
the investments have a positive NPV, have IRR more than the cost of capital, the investment
B has the highest PI followed by B and then C, thus, it would be the best option to invest
here (incase of mutual exclusive investment) with a practical and rational situation.

Many MNCs are heavily engaged in international business, like importing, exporting, or
foreign direct investments in other countries which help them grow exponentially over the
years. The value of these MNC’s change with their income and expenses involving various
kinds of risks (Madura, 2015).

According to Hafsa (2020), the risks involved with MNCs are explained as follows: -

 Foreign exchange risks are categorized into translation, transaction, economic and
operational exposures. Firms involving in these activities like money transfer from
one country to another carry uncertainty of the currency rate of individual currency.
As the currency of a country changes relative to their domestic currency, a company’s
earning may affect a lot either positively or negatively (Jacque, 1996).
Investment A - This project involves 50% in a British manufacturing company and
50% in a Korean company. The GBP has been very stronger than the US dollar for
over 20 years, but, after the announcement of Brexit in June,2016, the pound sterling
has been volatile since then, making a low of 1.20 as compared to USD and
rebounding a little in 2018 at 1.40 (Depersio, 2020). On the other side, Korean won
has been called the 3rd most volatile currencies, by Jinseo (2007), among the 32 major
currencies in the world. Thus, according to exchange risks involved, Investment A
can be marked as 6(see table 1).
Investment B – According to Karen Young (2020), Chinese leaders are rapidly
changing the exchange rate policy so that the domestic demand to increase my many
folds. Thus, this investment can be marked as 9(see table 1).
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Investment C – According to Rakesh, 2019, when exchange rates go up and down, be

it AED to INR or USD to INR, and the Indian rupee decline, it’s not all sad and tragic
for the local economy. As imports become expensive and exports become more
affordable, a weakened domestic currency can actually be a stimulus to the country’s
trade deficit. Thus, Investment C can be rated as 8(see table 1).
 Interest Rate risks may be constant, which is called ‘Fixed Interest rate Debt
Instrument’, which as a result brings risks as when future interest comes down then
the company has a burden of debt servicing, or related to some benchmark or
variable, called as ‘Floating Interest Rate Debt Instrument’ (FIR), like LIBOR
(London Inter-Bank Offer Rate), which brings uncertainty for future interest
payments in turn making the cost of capital unknown (Hafsa, 2020). Interest rate in
developing countries like India, where the management of interest rate risk is a new
concern, is controlled by Reserve Bank of India (RBI) to ensure stability, but changes
being brought up by the government incline it more towards market driven. In case of
UK, findings from CIMA shows that it is more important for MSMEs to fulfill their
needs such as to implement a strategy, satisfying customer needs and getting their
raw materials instead of focusing on management of financial risks (Dhanani el al,
2005). Therefore, a ranking can be established for our investment purposes in
different countries (see table 1).
 Political Risks results when a government or political party changes, or the instability
in a country which in-turn is directly related to every other risk involved for an
investment for a business-like country risk, sector risk, project risk and currency risk.
No investment destination country can explain this risk better than China, as over the
past 25 years, the Chinese Communist party’s financial reforms and strategies have
opened all gates for foreign direct investment which generated miraculous growth,
where it has lifted million of people out of poverty and put out the Chinese firms to
globally (Bremmer et al, 2006). This is very relevant to see, that though India has a
very bloody conflict along the Line of Actual Control (LAC) and the rising anti-china
sentiment, still China has managed to become the biggest trade partner at the first
half of 2020-21, eliminating the USA which used to hold the position (Sundaram et
al, 2021, Feb 21). Although UK managed to leave the EU on January 31, still the
political economic consequences may take years to address. (See Table 1)
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 Demographic Risks - In an attempt to assess importance of demographic factors in

investment decisions, the study conducted by Geetha and Ramesh (2012) finds mixed
response, like there has been no significant relationship between demographic factors
and other factors that influence the investment decision making process. However, in
case of relationship between demographic factors and periods of investments, it was
found that a few demographic variables such as family size, annual income and
annual savings have significant relationship. The hypothesis tells us that there is a lot
relation between factors such as gender, age, education, occupation, annual income
and annual savings. The details tell us there is some relation in demographic variable
and where people like to invest. Finally, it was found that there was also some
relation with demographic factors such as gender, education, occupation, annual
income and annual savings with the analysis of investment avenues by the investors.
In this case also no relation was found between number of people in a family or their
quantity. The hypothesis also tells a general view of the investors’ perception over
various investment avenues. It shows a different habit of Indian people in terms of
investment. Normally, in any developing country, people try to invest more in
intangible assets than tangible assets but in Indians were only investing in tangible
assets and now their opinions are mainly between intangible and tangible assets.
Indians who don’t want to take risks, invest in insurance and post office saving
securities which gives more return than the nationalized banks do.

Change in a company’s earnings due

to unexpected changes in foreign
currency
exchange rates relative to their
domestic currency is known as
foreign exchange rate
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risks (Jacque, 199

Table 1
Markings(0-10, 0 being highest and 10 being lowest in risk)
Investment A Investment B Investment C
Exchange Rate 6 9 8
Interest Rate 8 8 6
Risks

Political 7 9 5
Demographics 8 7 8
Average 7.25 8.25 6.25
Rank 2 1 3

As per the data collected in the above table by mentioning the potential forms of risks for an
investment to make in case of mutually exclusive environment, we found investment B to be
the best investment as it potentially involves low risks of investment followed by investment
A & C which are done if different countries.

Also, as per the data collected by investment appraisal techniques above, most favorable by
net present value was Investment B and by profitability index it was investment A.

Thus, as a whole investment B can be good to go with good returns as well.

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PART II

Transfer Pricing is defined as the problem of finding a price or cost that bring an efficient
and effective level of trade and transfer of goods or services between two divisions
(Holmstrom et al, 1991). The purpose of transfer pricing is to provide details and facts which
motivates the managers of division to make a good economic conclusion by making profits
which in turn make the parent company profitable, to provide details to improve various
performances of the division, like economic presentation, to make sure the self-governing
divisions do not weaken, and to intentionally make profits by shifting the income to different
locations to save on various taxes, like income tax (Drury, C., 2017).

According to Lambert, 1979, in a scattered organisation a quasi-market is established, where

a particular division's growth is directly related on the relation it has with the other division,
which may also result in conflicts sometimes, as no one transfer price is a perfect one to
serve in all condition in turn forcing managers to trade-offs. For example, The Coca-Cola
Company transferred IP value to its divisions in countries of Europe, Africa and South
America in the time period of 2007-09 to save and protect its $3.3billion transfer pricing of a
royalty argument, where the battle of litigation is still on with the IRS (Seth, 2019). Another
example of an Ireland-based medical device maker Medtronic is on trial by the IRS accusing
the company of transferring its intangible assets to Puerto Rico (a country where taxes are
very low) worth $1.4billion (Seth, 2019).

Drury, 2017 explained different methods for transfer pricing which are used by different
organisations as follows: -

Market Based Transfer Prices is where the prices are set according to the competitive market
price which is effective for both who are making decision and evaluating economic
performance. When the goods which are transferred at market prices, the contribution of the
individual divisions shows the real economic growth of the company. When the goods and
services are not taken from another division, the intermediate product can be bought from the
outside market. Therefore, the profits of each division can be similar. The price based on the
markets are rely on opportunity costs concept, as the selling division can sell all the products
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fabricated by it in the market, as transferring internally at a lower cost than selling in the
market would affect the division a lot. According to a study by Schuster et al, 2010, market
prices are difficult to manipulate, although they might fluctuate over time due to uncertain
market conditions in future. They concluded that the market-based transfer pricing does not
perform towards the positive or making profits in case of synergies and interdependencies, as
when the imperfect market exists a company finds difficulty in attaining the coordination
function.

Cost Plus a Mark-Up Transfer looks at the transactions and growth of same third-party firms
which can be compared to ensure that the companies are allocating a fare way of international
profit, which is based on mark-ups observed in them. A market-based mark-up is added to the
manufacturing costs incurred by the supplier in a controlled transaction. For example, a
French corporation produces goods with a contract with the parent firm in Germany, then it
needs to show the correct total cost plus, which is important how much the company should
mark up the cost of the finished goods when vending to their parent. The most effective way
to find the cost plus would be to look at the actual transactions between the French company
and the third party. When we don’t have internal data or transactions to compare, we can look
and compare the data transacted with an outsider company or a third party.

Marginal/Variable Cost Transfer Prices are prices which are set at the marginal or variable
cost when the condition of market is not good or very irrational situation arises, to benefit
both the supplier and the receiver (Drury, 2017). If, for example, a product has a variable cost
of $1 and a normal selling price is $2, the firm selling the item might wish to lower the price
to $1.10 if demand has disappeared. The company would select this method because
the incremental profit of 10 cents from the transaction is better than no sale at all.

An organisation may also set up Full Cost Transfer Price which is the sum of variable and
fixed costs per unit. In order to ensure that the selling division also grows or earns a profit
they can also add a mark-up (Holtzman, 2018). QWE Inc. projects the following costs in its
business in the upcoming year, with total production costs at $3,500,000 and total sales and
administration costs = $1,500,000. The company wants to earn a profit of $150,000 during
that time. Also, QWE projects to sell 300,000 units of its product. Based on this information
and using the full cost-plus pricing method, QWE calculates the following price for its
product:
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= ($3,500,000 Prod. + $1,500,000 Sales/admin + $150,000 mark-up) ÷ 300,000 units 

= $17.16 Price per unit.

Negotiated Transfer Pricing arises when their irrational market condition or imperfect
conditions of the market. Due to these imperfect market conditions, the individual divisional
manager should be allowed to operate outside the company enabling them for bargaining and
negotiating. To work this model effectively, the managers of the supplier end and the
receiving end should have the equal opportunities in the market for negotiating. Unequal
opportunities to the respective managers may also occur if the transfer pricing is low for one
business and large for another. Generally, negotiations take time to perform and may also
lead to intracompany conflicts. The negotiated prices fluctuate between marginal costs and
market prices, thus, not fulfilling the primary cause of the transfer pricing (Schuster et al,
2010).
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PART III
Gibbs model of reflection (1988), is focused on self-reflection with a need to see that
reflection and bring a change accordingly. (Wilding, 2008). The cyclic nature of the model
reflects our own activities and experiences which helped to examine the nature of repetitive
tasks with other workers (Johns, 2017). Gibbs (1988) stated: “It is not sufficient simply to
have an experience in order to learn. Without reflecting upon this experience, it may quickly
be forgotten, or its learning potential lost. It is from the feelings and thoughts emerging from
this reflection that generalisations or concepts can be generated and it is generalisations that
allow new situations to be tackled effectively”. This quotation can tell us it can be used in
many professions (Howatson, 2016).

In terms with the Gibbs model consisting of 6 steps of description, feeling, evaluation,
analysis, conclusion, and action plan, I related my own profession situation and effectively
learn out of it.

Step 1 – Working on a production shop floor, as an engineer, with a manufacturing company,

I had an emergency situation where there was a sudden demand for spare parts production,
just after the lockdown came to an end in May 2020.

Step 2 – We felt tremendous amount of pressure from management as saying no to customer

was against our company’s policy. The fear of COVID-19 and satisfying the customer
demands both has to be managed.

Step 3 - The positive thing about the situation was that we had the required inventory and raw
material to be used. The negative thing was that there was a shortage of manpower.

Step 4 – I and my team understood the situation. We had the inventory left with us even
following lean manufacturing practice as due to the sudden lockdown in March 2020. The
Manpower shortage was there as many people could not afford the circumstances and rushed
towards their native places, villages or towns. We gathered all the information of the local
working workforce immediately and created a roadmap to invite them back to work.

Step 5 – There was a lot to learn from our practices, like the trust in our employees, time
management and just in time practice was also introduced. It turned out to be a successful
project where we did not halt our customers line.
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Step 6 – We called each and every employee, on war footing, who could come at this time to
join our workforce to complete the task. Small rewards and appreciation were also delivered
to them.
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Conclusion

1)While there are many investment appraisal techniques used by the corporate finance to find
out the best investment projects, Net Present Value turns out to be the most superior than
other investment techniques as it covers the lifetime of the project, time value of the money,
benefitting the most for the company as well as the shareholders and easy to compare in the
case of mutual exclusive projects.

There are various risks involved while investing in an organisation which may vary country
to country like political risks, which came out to be in favour of China due to its veteran
communist party and unity whereas India does not enjoy the same benefits being a
democratic country, Foreign exchange risks, like a strong currency such as dollar now comes
under a question due to Brexit, and Interest Rate risks, where some countries enjoy very low
interest rates and thus in turn have a very strong net present value for a company to invest in.

2) Transfer pricing is done with various purposes as explained above like motivating
managers with information to work for growth, providing details for various purposes to
upscale the divisional performance and to ensure the division autonomy is not undermined. In
the case of a good competitive marketplace, the transaction happening would explain the
exact economic condition of the company (Drury, 2017).

As discussed, the various transfer pricing methods, in reality there is no one particular
method for decentralised organisation which would be helpful for them in achieving the full
potential growth. Thus, the method selected for transfer pricing can reflect an individual
company’s nature of doing business in order to gain success. Anderson and Sollenberger have
presented their evaluation of various transfer pricing approaches which is shown in the below
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table: - (Aggarwal, 2015)

References

Agrawal, Rohit. (2015). Methods of Transfer Pricing. Retrieved from

https://www.yourarticlelibrary.com

Colin, D. (2017). Management and Cost Accounting. Cengage Learning. Retrieved from

https://shu.primo.exlibrisgroup.com

Depersio, Greg (2020). Why British Pound is Stronger Than the US Dollar. Retrieved from
https://www.investopedia.com

Dhanani, A., Fifield, S. G. M., Helliar, C. V., & Stevenson, L. A. (2005). Interest rate risk
management-an investigation into the management of interest rate risk in UK companies. The
Chartered Institute of Management Accountants 26 Chapter Street London SW1P 4NP, 2(4).

Dudley, C. L. (1972). A note on reinvestment assumptions in choosing between net present

value and internal rate of return. The Journal of Finance, 27(4), 907-915.

Gallo, A. (2014). A refresher on net present value. Harvard Business Review, 19.

Geetha, N., Ramesh, M. (2012). A study on relevance of demographic factors in investment

decisions. Perspectives of Innovations, Economics, and Business. Vol 10-11 (1-2), (p.14-27).

Hafsa, H. (2020). Risks in International Business | Foreign Exchange. Retrieved from

https://www.yourarticlelibrary.com/economics/foreign-exchange/risks-in-international-
business-foreign-exchange/98524
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Holmstrom, B., & Tirole, J. (1991). Transfer pricing and organizational form. JL Econ. &
Org., 7, 201.

Howatson-Jones, L. (2016). Reflective practice in nursing, London, Learning Matters.

Jacque, L. (1996), Management and Control of Foreign Exchange Risks. Kluwer Academic
Publishers.

Johns, C. (Ed.). (2017). Becoming a reflective practitioner, London, John Wiley & Sons

Lambert, D. R. (1979). Transfer Pricing and Interdivisional Conflict. California Management

Review, 21(4), 70–75. Retrieved from https://doi.org/10.2307/41164836

Madura, J. (2015). International financial management (12th edition.). Cengage Learning.

Retrieved from https://shu.primo.exlibrisgroup.com

Murphy, C. (2020), Accounting Rate of Return. Corporate finance and Accounting. Retrieved
from https://www.investopedia.com

Rakesh, J. (2019). What Causes the Indian Rupee to Fluctuate? Retrieved from
https://www.xpressmoney.com

Schuster et al, (2010). Transfer Prices: Functions, Types, and Behavioural Implications.
Management Accounting. Retrieved from https://www.imanet.org

Seth, Shobhit. (2019). CORPORATE FINANCE & ACCOUNTING. Transfer Pricing.

Retrieved from https://www.investopedia.com

Sundaram, Karthikeyan et al (2021, February 21). Business News. Bloomberg Quint.

Watson, D., & Head, A. (2019). Corporate finance. ProQuest Ebook

Central https://ebookcentral.proquest.com

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Appendix A (Please double tap the worksheet to scroll)

Investment A

Value
No. of years after Net Inflow Discount
COGS Net Inflow after Tax Factor
PBP @20% before tax @10% @15%
Initial Cost 1,000,000

0 Sales 20X8 -1,000,000 -1,000,000 1

1 Sales 20X9 200,000 856,000 160,000 160,000 144,000 0.870
2 Sales 20X0 200,000 712,000 160,000 160,000 144,000 0.756
3 Sales 20X1 300,000 496,000 240,000 240,000 216,000 0.658
4 Sales 20X2 250,000 316,000 200,000 200,000 180,000 0.572
5 Sales 20X3 700,000 -188,000 560,000 560,000 504,000 0.497
6 Sales 20X4 800,000 640,000 640,000 576,000 0.432
7 Sales 20x5 300,000 240,000 240,000 216,000 0.376
8 Sales 20X6 50,000 40,000 40,000 36,000 0.327

value on 20X6 0

Average Profit = 252000

Average Investment = 500,000

ARR = 50.40%

PBP = 20X3 period 4.63 years

NPV 1 = 71540 value @15%

NPV 2 = -4060 value @17%

IRR = 16.89%

PV of cash flow = 1,071,540

PI = 1.072
Ranking by NPV = 3
Ranking by PI = 1
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Appendix B (Please double tap the worksheet to scroll)

Investment B
Net Inflow
No. of years Value after Net Inflow after Tax
PBP COGS @ 40% before tax @20%
Initial Cost 8,000,000

0 Sales 20X8 -8000000 -8000000

1 Sales 20X9 0 8,000,000 0 0 0
2 Sales 20X0 3,000,000 6,560,000 1,800,000 1,800,000 1440000
3 Sales 20X1 3,000,000 5,120,000 1,800,000 1,800,000 1440000
4 Sales 20X2 3,100,000 3,632,000 1,860,000 1,860,000 1488000
5 Sales 20X3 7,100,000 224,000 4,260,000 4,260,000 3408000
6 Sales 20X4 7,100,000 -3,184,000 4,260,000 4,260,000 3408000
7 Sales 20x5 7,100,000 4,260,000 4,260,000 3408000
8 Sales 20X6 4,500,000 2,700,000 5,700,000 4560000

value on 20X6 3,000,000

Average Profit = 2394000

Average Investment = 5,500,000

ARR = 43.53%

PBP = 20X4 period 5.07 years

NPV1 = 431056 value @ 16%

NPV2 = -287984 value @18%

IRR = 17.20%

PV of cash flow = 8,431,056

PI = 1.054
Ranking by NPV = 1
Ranking by PI = 3
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Appendix C (Please double tap the worksheet to scroll)

Investment C

No. of years Value after COGS Net Inflow Net Inflow

PBP @ 45% before tax after Tax @5%
Initial Cost 4,000,000

0 Sales 20X8 -4000000 -4000000

1 Sales 20X9 100,000 3,947,750 55,000 55,000 52,250
2 Sales 20X0 300,000 3,791,000 165,000 165,000 156,750
3 Sales 20X1 500,000 3,529,750 275,000 275,000 261,250
4 Sales 20X2 600,000 3,216,250 330,000 330,000 313,500
5 Sales 20X3 1,000,000 2,693,750 550,000 550,000 522,500
6 Sales 20X4 1,200,000 2,066,750 660,000 660,000 627,000
7 Sales 20x5 1,500,000 1,283,000 825,000 825,000 783,750
8 Sales 20X6 1,600,000 -2,097,000 880,000 3,380,000 3,211,000

value on 20X6 2,500,000

Average Profit = 741000

Average Investment = 3,250,000

ARR = 22.80%

PBP = 20X6 period 7.4 years

NPV1 = 284120 value @5%

NPV2 = -1609581.5 value @15%

IRR = 6.50%

PV of cash flow = 4,284,120

PI = 1.071
Ranking by NPV = 2
Ranking by PI = 2