Finance - Investment
Case study - Further task
Having looked at one example, let us now introduce some added complications. Consider the case below.
Biz Training is contemplating relocating to new premises. Two possible sites are available with slightly different features and aspects. The re-location will help them to be able to meet clients' needs more effectively.
Location A:
Investment required for the move = £10 million
Anticipated Income Streams over a four year period:
| Year 1 | 9.0 m |
| Year 2 | 11.5 m |
| Year 3 | 13.0 m |
| Year 4 | 15.0 m |
The average contribution on the income streams = 40%
The overhead costs for this location are £400,000
The average cost for the loan capital for this project is 8%
Location B:
Investment required for the move = £8 million
Anticipated Income Streams over a four year period:
| Year 1 | 10.0 m |
| Year 2 | 12.0 m |
| Year 3 | 14.0 m |
| Year 4 | 15.5 m |
Average Contribution on the income streams = 50%
The overhead costs for this location are £350,000
The average cost for the loan capital for this project is 10%
Discount Tables:
| 8% | 10% | |
| End of Year 1 | 0.93 | 0.91 |
| End of Year 2 | 0.86 | 0.83 |
| End of Year 3 | 0.79 | 0.75 |
| End of Year 4 | 0.73 | 0.68 |
Use Payback and Net Present Value to do an investment appraisal of the proposals.
