INVESTMENT APPRAISAL-CORONATION INVESTMENT PLC

Investment Appraisal-Coronation Investment Plc.

Investment Appraisal-Coronation Investment Plc.

Coronation Investment Plc. provides a range of products and services for sale in the UK. The Dagenham family and the other directors own the majority of the equity share capital, the remainder being held by employees and small shareholders. The company is structured as a group of wholly-owned subsidiaries. Each subsidiary specialises in a particular product or service. The company has two stated objectives:

To increase operating cash flow and dividends per share year-on-year by at least 5%.

To increase the wealth of the shareholders whilst respecting the interests of employees, customers and other stakeholders and operating to the highest ethical standards.

Car Park

310000

Public Areas

90000

Kiosks

20000

Atrium Cafes

40000

Shops

777000

Offices

420000

Capital

33140000

Total

34797000

 

 

Building Costs

2710500

 

4485000

Public Areas

2765000

Lifts

270000

Ancillary

1200000

Professional Fees

1263050

Contingencies

631525

Inflation

260000

Inflation Construction

700000

Short Term Finance

900000

 

410000

Letting & Sales Fees

200000

Marketing & Advertising

83000

Developers Profit

3761600

Land Cost

3100000

Finance & Fees on Land Purchase

680000

Total

23419675

 

 

Net Figure

11377325

Investment Appraisal

Currently, the company has two alternatives to choose from. Both these alternatives have been analyzed in the attached excel sheet. Various techniques have been applied to determine the effectiveness of both these alternatives.

As per the calculations attached in excel sheet, we can easily say that project 2 is the most suitable one for Coronation Investment Plc.. We have analyzed the given cash flows of three projects using techniques such as Net Present Value (NPV), Internal Rate of Return (IRR) and Payback Period (PBP). The reason for analyzing these projects by multiple techniques is to increase the reliability and authenticity of our forecast. From the excel sheet, we can easily see that Net Present Value of Project 1 is greater than the rest of the two. We accept the project having highest value of NPV because higher the NPV, greater would be the returns and profitability of the project.

Coming to IRR, project 1 and 2 have the IRR of 9% while project 2 has a greater IRR of 20%. As per the IRR rule, we accept the project having IRR greater than the discount rate. In this case, all the three projects have IRR greater than the discount rate. Project 2 has highest IRR so we should have accepted this project. The NPV also suggests the same thing i.e. project 2 is worth acceptable.

The payback period of project 1 & 2 is -2.57 & 1.05 respectively. Generally, we accept the project having lesser payback period because payback period represents the period in which our investment would be paid back to us. Thus lesser the payback period, greater would be the profitability.

Payback Period

The payback period is defined as the length of time required to recover an initial investment through cash flows generated from the investment. The payback period provides some visibility as to the level of profitability of the investment in relation to time. The shorter the time period the better the investment opportunity:

Arguments In Favor Of Payback

Firstly, it is popular because of its simplicity. Research over the years has shown that UK firms favor it and perhaps this is understandable given how easy it is to calculate.

Secondly, in a business environment of rapid technological change, new plant and ...