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a) Undertake a quantitative evaluation of the four alternative strategies identified by the chairman, in terms of shareholder value creation, so as to assist the companys strategic choice. Round all calculations to the nearest £10,000.

b) On the basis of your analysis, write a report to the board of directors of Nakerite recommending, with reasons, what might be the best strategic choice for the company to make. Include in your report a short discussion as to the potential limitations of your quantitative analysis.

c) Nakerite's investment decision concerning the use of graphine coating technology in solar array manufacture, contains a great deal of uncertainty about a range of factors such as the degree to which the technology transfer will be successful, the life span of the graphine technology, the manufacturing costs utilising the technology and consumer reaction to the technological advance.

Critically discuss the different ways in which Nakerite might undertake an NPV investment appraisal of the graphine coating project so as to take these and other risk factors into account. Include in your discussion a consideration of real options.

Case Study

This report has been presented to analyze and evaluate many factors related to finance and profits of a company. In this report, a case has been analyzed to understand the investment appraisal technique of a business. It has been analyzed through this report that various options are available for a company to invest and manage the profitability of the company. It has been analyzed through this study that a company could use various options to manage the performance and it has also been observed that a company must choose the best technique after analyzing various factors and aspects related to internal and external aspect of the company. It has also been analyzed that this would help the organization in managing the worth of the company and through it the share price of the company would also enhance.

It has been analyzed through the study that various substitutes are available in the market for the company to invest into and enhance the profitability of the company. In this report, 4 substitutes have been analyzed and found that which substitute is the best for the company to make an investment and manage the condition of the company.

This case study depicts the user about a company which is looking for some changes into its operations. Various techniques which have been used by the company currently or which could also be used by the company in future have been analyzed to manage the business functioning of the company. It has been found through this study that this company has 4 strategies which are liquidity of assets, sales of the company to some Chinese investors, switch over a new technology to enhance the sales revenue and performance of the company and operate the business with the same technology which is currently used by the company. In this technique entire data has been given related to financial performance of the company.

Quantitative evaluation:

Quantitative evaluation has been performed over the company to manage the strategies and also for investigating the best available strategy for the betterment of the company (Fernandes, Lynch and Netemeyer, 2014). The evaluation of all the 4 alternative strategy has been given below:

Sale of the company to the Chinese investors

Given,

Number of shares

                    1,00,000

Initial offer

40 NI PO per share

plus cash

 £                    300.00

NI PO Share market price

 $                    143.75

Calculation of total amount paid by the company to acquire the company

 (Amt in ‘0000)

company' share

                    1,00,000

Amount paid by the Chinese company

Initial offer

 £                    46,000

Add: cash

 £                      3,000

Total

 £                    49,000

0.49

This strategy depicts that if the company would be sold to the Chinese investors than there would be £ 0.49 worth of every share. It has been analyzed in this strategy that the Chinese investors have offered a deal to the company in which company would be get 40 shares of NI PO in exchange of each share of the company and additionally, £ 300 would also be paid to the shareholder in exchange of each share (Gali, 2015). Through evaluating this strategy, it has been found that the total amount would be £ 49,00,00,000 which would be get by the shareholder of the company and the share price of every share would be £ 4900.

Using the current technology for next year’s:

Calculation of net present value

Time

Cash inflow

Discount factor

Present Value

Cash outflow

Discount factor

Present Value

 £             -   

10%

10%

0

5600

1

5600

1

1

7056

0.909091

6414.54545

4076.8

0.909091

3706.1818

2

8890.56

0.826446

7347.57025

5136.768

0.826446

4245.2628

3

11202.106

0.751315

8416.30774

6472.3277

0.751315

4862.7556

4

14114.653

0.683013

9640.49795

8155.1329

0.683013

5570.0655

5

17784.463

0.620921

11042.7522

10275.467

0.620921

6380.2568

PV

48461.6736

24764.523

NPV

23697.1511

0.23697151

This strategy depicts that if the company would use the same technology which is used by the company currently than there would be £ 0.24 worth of every share. It has been analyzed in this strategy that if the same technology would be used by the company than the annual sales and operating margin of the company would be enhanced by 26% and at the same time the working capital and the capital expenditure of the company would also enhance.  Through evaluating this strategy, it has been found that the total amount would be £ £ 2369715107 which would be got by the shareholder of the company and the share price of every share would be £ 2369 (Du and Girma, 2009).

Quantitative Evaluation

Changes into the technology of the company:

(Deegan, 2013)

This strategy depicts that if the company would use the new technology than there would be £ 0.35 worth of every share. It has been analyzed in this strategy that if the new technology would be used by the company than the annual sales and operating margin of the company would be enhanced and at the same time the working capital and the capital expenditure of the company would also enhance (Gambacorta and Signoretti, 2014).  Through evaluating this strategy, it has been found that the total amount would be £35,416,00,000 which would be got by the shareholder of the company and the share price of every share would be £ 3500.

(Brigham and Ehrhardt, 2013)

This strategy depicts that if the liquidation of the assets of the company take place there would be £ 0.375 worth of every share. It has been analyzed in this strategy that the total patent of the company is worth of this strategy depicts that if the company would be sold to the Chinese investors than there would be £ 0.49 worth of every share. It has been analyzed in this strategy that the Chinese investors have offered a deal to the company in which company would be get 40 shares of NI PO in exchange of each share of the company (Gitman and Zutter, 2012)and additionally, £ 300 would also be paid to the shareholder in exchange of each share. Through evaluating this strategy, it has been found that the total amount would be £ 49,00,00,000 which would be get by the shareholder of the company and the share price of every share would be £ 3,10,00,00,000. Through evaluating this strategy, it has been found that the total amount would be £ 37,50,00,000 which would be get by the shareholder of the company and the share price of every share would be £ 3750 (Borio, 2014).

There are various techniques which could be used by the board of directors and top level management of the company to manage the performance of the company and choose the best alternative for the betterment of the company. The 4 alternative strategies have been analyzed and their result has been described as below:

This strategy depicts that if the company would be sold to the Chinese investors than there would be £ 0.49 worth of every share. It has been analyzed in this strategy that the Chinese investors have offered a deal to the company in which company would be get 40 shares of NI PO in exchange of each share of the company and additionally, £ 300 would also be paid to the shareholder in exchange of each share (Grinblatt and Titman, 2016). Through evaluating this strategy, it has been found that the total amount would be £ 49,00,00,000 which would be get by the shareholder of the company and the share price of every share would be £ 4900.

This strategy depicts that if the company would use the same technology which is used by the company currently than there would be £ 0.24 worth of every share. It has been analyzed in this strategy that if the same technology would be used by the company than the annual sales and operating margin of the company would be enhanced by 26% and at the same time the working capital and the capital expenditure of the company would also enhance.  Through evaluating this strategy, it has been found that the total amount would be £ £ 2369715107 which would be got by the shareholder of the company and the share price of every share would be £ 2369.

Alternative Strategy 1

This strategy depicts that if the company would use the new technology than there would be £ 0.35 worth of every share. It has been analyzed in this strategy that if the new technology would be used by the company than the annual sales and operating margin of the company would be enhanced and at the same time the working capital and the capital expenditure of the company would also enhance (Horngren et al, 2005).  Through evaluating this strategy, it has been found that the total amount would be £35,416,00,000 which would be got by the shareholder of the company and the share price of every share would be £ 3500.

This strategy depicts that if the liquidation of the assets of the company take place there would be £ 0.375 worth of every share. It has been analyzed in this strategy that the total patent of the company is worth of This strategy depicts that if the company would be sold to the Chinese investors than there would be £ 0.49 worth of every share. It has been analyzed in this strategy that the Chinese investors have offered a deal to the company in which company would be get 40 shares of NI PO in exchange of each share of the company and additionally, £ 300 would also be paid to the shareholder in exchange of each share. Through evaluating this strategy, it has been found that the total amount would be £ 49,00,00,000 which would be get by the shareholder of the company and the share price of every share would be £ 3,10,00,00,000 (Jaumotte, Lall and Papageorgiou, 2013). Through evaluating this strategy, it has been found that the total amount would be £ 37,50,00,000 which would be get by the shareholder of the company and the share price of every share would be £ 3750.

Thus through the above analysis, it has been found that the strategy num 1 is the best which is to sale the company to the investors as in this strategy, the share price is at its maximum. In this strategy, the company would be sold to the Chinese investors than there would be £ 0.49 worth of every share. It has been analyzed in this strategy that the Chinese investors have offered a deal to the company in which company would be get 40 shares of NI PO in exchange of each share of the company and additionally, £ 300 would also be paid to the shareholder in exchange of each share. Through evaluating this strategy, it has been found that the total amount would be £ 49, 00,00,000 which would be get by the shareholder of the company and the share price of every share would be £ 4900 (Bandy, 2013)

Through this case, it has been analyzed that if the new technology would be adopted by the company than there would be many risk factors which could be faced by the company to manage the performance of the company.

Degree of new technology:

Alternative Strategy 2

It has been analyzed that it would take a huge time for the company to manage the operations of the company according to the new technology. The employees of the company would also have to work hard to understand the new technology and set up their work accordingly and this would enhance the cost of the company and a period of working house would be wasted to understand the new technology (Kaplan and Atkinson, 2015). Thus the new technology would be more time consuming as well as cost consuming for the company.

Life span of new technology:

It has been analyzed that the total life of the new technology is 10 years but this technology could offer the high revenue to the company for maximum 4 years as after that, new technology would overtake this technology in the market. The employees of the company would also have to work hard to understand the new technology and set up their work accordingly and this would enhance the cost of the company and a period of working house would be wasted to understand the new technology (Kiran, & Singh, 2014). Thus the new technology would be more time consuming as well as cost consuming for the company.

Manufacturing cost:

It has been analyzed that if the new technology would be adopted by the company than the manufacturing cost of the company would enhance by a huge % as the required working capital, time consumption and cost consumption of the company would also be high. The employees of the company would have to work according to the new technology so the training cost of the company would also be enhanced. Thus the new technology would be more cost consuming for the company as the manufacturing cost of the company would be at its highest (Bierman and Smidt, 2012).

Huge capital expenditure:

It has been analyzed that if the new technology would be adopted by the company than the company have to invest a huge amount for the training of the employees, implementing the new technology into the factory of the company, manufacturing cost of the company would be higher, the salary of experts would be higher etc. The employees of the company would have to work according to the new technology so the training cost of the company would also be enhanced. Thus the new technology would be more cost consuming for the company as the manufacturing cost of the company would be at its highest. And thus huge capital is required by the company to implement this strategy (Kurov and Stan, 2016).

Technology and consumer relation:

It has been analyzed that if the new technology would be adopted by the company than the company is required to set a relation between the customers and the technology to maintain the performance of the company. It has been found that the technology could be helpful for the organization, only if the customer would be friendly with that new technology.  Thus the new technology must be high in maintaining a good relation with the consumer of the company (Airaudo, Nisticò, and Zanna, 2015).

Alternative Strategy 3

Different ways in which company could undertake the NPV investment appraisal:

For the betterment of the new technology, the company could evaluate the NPV by making some changes into the figures such as:

Changes into the life span:

Changes into the total time period of the technology could offer the different result as the NPV amount would be changed (Romney et al, 2006).

Changes into the discounting factor:

Changes into the discounting factor of the technology could offer the different result as the NPV amount would be changed.

Changes into the cash outflow of the company:

Changes into the total cash flow of the company could offer the different result as the NPV amount would be changed (Shapiro, 2005).

Thus it has been found that various factors are there to make changes into the NPV of the company.

Conclusion:

In this report, a case has been analyzed to understand the investment appraisal technique of a business. It has been analyzed through this report that various options are available for a company to invest and manage the profitability of the company. It has been analyzed through this study that a company could use various options to manage the performance and it has also been observed that a company must choose the best technique after analyzing various factors and aspects related to internal and external aspect of the company. It has been found that the strategy num 1 is the best which is to sale the company to the investors as in this strategy; the share price is at its maximum. Through evaluating this strategy, it has been found that the total amount would be £ 49, 00,00,000 which would be get by the shareholder of the company and the share price of every share would be £ 4900. So it is recommended to the company to choose the first alternative strategy.

References:

Airaudo, M., Nisticò, S. and Zanna, L.F., 2015. Learning, monetary policy, and asset prices. Journal of Money, Credit and Banking, 47(7), pp.1273-1307.

Bandy, G. 2013. Financial management and accounting in the public sector. Oxon: Routledge.

Bierman Jr, H. and Smidt, S., 2012. The capital budgeting decision: economic analysis of investment projects. Routledge.

Borio, C., 2014. The financial cycle and macroeconomics: What have we learnt?. Journal of Banking & Finance, 45, pp.182-198.

Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.

Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.

Du, J. and Girma, S., 2009. Source of finance, growth and firm size: evidence from China (No. 2009.03). Research paper/UNU-WIDER.

Fernandes, D., Lynch Jr, J.G. and Netemeyer, R.G., 2014. Financial literacy, financial education, and downstream financial behaviors. Management Science, 60(8), pp.1861-1883.

Galí, J., 2015. Monetary policy, inflation, and the business cycle: an introduction to the new Keynesian framework and its applications. Princeton University Press.

Gambacorta, L. and Signoretti, F.M., 2014. Should monetary policy lean against the wind?: An analysis based on a DSGE model with banking. Journal of Economic Dynamics and Control, 43, pp.146-174.

Gitman, L.J. and Zutter, C.J., 2012. Principles of managerial finance. Prentice Hall.

Grinblatt, M. and Titman, S., 2016. Financial markets & corporate strategy.

Horngren, C.T., Sundem, G.L., Stratton, W.O., Burgstahler, D. and Schatzberg, J., 2005. Introduction to management accounting. Upper Saddle River, New Jersey: Prentice Hall.

Jaumotte, F., Lall, S. and Papageorgiou, C., 2013. Rising income inequality: technology, or trade and financial globalization?. IMF Economic Review, 61(2), pp.271-309.

Kaplan, R.S. and Atkinson, A.A., 2015. Advanced management accounting. PHI Learning.

Kiran, R. S., & Singh, V. K. 2014. How to make the financial analysis an easy task – A comparative analysis between the traditional and the modern approach? International Journal of Engineering Research and Applications, 4(8), 61-66.

Kurov, A. and Stan, R., 2016. Monetary Policy Uncertainty and the Market Reaction to Macroeconomic News: Evidence from the Taper Tantrum.

Romney, M.B., Steinbart, P.J., Zhang, R. and Xu, G., 2006. Accounting information systems. Pearson Education.

Shapiro, A.C., 2005. Capital budgeting and investment analysis. Prentice Hall.

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