Business Adviser

Business Adviser You have recently been appointed as a business adviser with a local Chamber of Commerce. They provide advice for business start-ups and strategic advice for existing SME’s. Recently David Lafferton has approached the Chamber o1’Comrnerce for advice regarding a possible investment. He has recently been made redundant and has received £100,000 redundancy payment. His wife Susan has had a small catering business which undertakes outside catering. mainly for weddings, funeral teas and children’s parties. Currently this is all done from the large kitchen in their house. If David were to use all or part of his redundancy money then Susan’s business could expand and have permanent dedicated premises with a small cafe. There are two possible investment opportunities open to them. The first is the old vicarage on the main street of their local village and would require an investment of £200,000, which is all of the money. The second option is the Olde Forge Tearoom which would require an investment of £120,000 but has less capacity than the first project. After extensive research the projected cash flows are estimated follows. It may be assumed that the cash flows arise evenly throughout the year. Year Vicarage Olde Forge 1 15,000 12,000 2 45,000 32,000 3 60.000 45.000 4 65.000 48,000 5 71.000 51,000 David and Susan agree that they need a minimum 12% return on their investment if it is to be worthwhile. TASKS Your task as a Business Advisor is to produce an informal report for David and Susan which gives a full Capital Investment Appraisal of both investment opportunities. This report should be as detailed as possible and conclude with recommendation(s) and reasons. Your report should contain the following: 0 The purpose and value of Capital Investment Appraisals 0 Calculations using both non-discounting and discounting methods of 1 investment appraisal. Comment on the limitations and advantages of the techniques used. Of the techniques you have used state which two in your opinion are of most USC. Recommend which project is the better option. stating why it is superior to the other option.