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Assessment Task Information Mark and Paul are university students studying marketing. They have been presented with two investment opportunities. Investment One The first opportunity is to...

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Assessment Task Information

Mark and Paul are university students studying marketing. They have been presented with two investment opportunities.

Investment One

The first opportunity is to invest in a new restaurant. If the investment is found to be worthwhile, they intend on having their opening night on 3 August, 2018.

Restaurant Purchases and Expenses

The investment requires the purchase of the following assets to begin trading:

• Machinery/Equipment $110,000

• Furniture (tables and chairs) $30,000

Vehicle (deliveries)

$43,000

Utensils (cups, plates)

$18,000

Produce (for 1 week)

$10,000

Drinks (for 1 month)

$20,000

The non-current assets would need to be purchased on 1 June to allow Mark and Paul to set up the restaurant in time for the big opening. As of 1 June, Mark and Paul will have $80,000 in their bank account.

Mark and Paul will be obtaining their produce and drinks from suppliers who allow them to purchase on credit. Based on their anticipated sales, they will be required to purchase $10,000 of produce for 1 weeks’ worth of trading which will commence on 1 August and will continue each week. They will be required to repay this by the end of August.

They will also be purchasing 1 months’ worth of drinks for $20,000 which will commence at the beginning of July and will continue each month. They will be required to repay their drink supply account off within 90 days of every purchase. They forecast that they will pay off 10% in the current month of purchase, 45% off 60 days after purchase and 45% off 90 days after purchase. For their first drink purchase, for example, they will repay 10% of the account off in July, 45% off in August and 45% off in September.

Mark and Paul will be managing the restaurant themselves and will be hiring 3 casual staff who will work 6 hours a day, 6 days a week at $23.00 an hour. Mark and Paul will be withdrawing $10,000 each per month from the businesses bank account as owner drawings.

It is anticipated that the total overhead costs per month (beginning in June) will be $5,000.

Restaurant Sales

Mark and Paul believe, on average, that they will be able to sell 20,000 meals in the first month of trade, 18,000 in the second month, 18,000 in the third month and 22,000 in the fourth month at an average sale price of $45.00. They forecast that drink sales will be triple the amount of meals per month and will be at an average sale price of $6.00.

Investment One Requirements

a. Identify and explain the nature and scope of investments to Mark and Paul.

b. Using the information presented above, prepare the following budgets for June, July, August and September:

• Sales budget

• Cash budget

• Labour budget

(Assume there are 4 weeks per month)

c. In your own words, critically analyse the three budgets and the forecasted information that Mark and Paul have provided. Provide a discussion on what each of these budgets say about their new potential investment (Hint: chapter 9)

d. What practical issues should Mark and Paul consider when making their decision to invest in the restaurant? (Hint: chapter 12).

Investment Two

The second opportunity is to invest their funds in a new business development on the Gold Coast with other venture-capital investors. The investment requires $390,000 from Mark and Paul. The investment promises net cash inflows over the four years of the investment of $100,000, $230,000, $190,000 and $140,000 respectively. The cost of the funds is 12 per cent.

Investment Two Requirements

a. Calculate the net present value, accounting rate of return and payback period (show all workings) and identify what they say about this investment (Hint: Chapter 12).

b. Compare and contrast the two investments. Which investment would be best for Mark and Paul? (Hint: Are the investments comparable? Do they have enough funds? Are the identified nature and scope of investments and the practical issues associated with the investments going to be an issue for Paul and Mark? Are these investments suitable for Mark and Paul’s needs? Do Mark and Paul have enough skills and time?).

Assessment Task Information

Mark and Paul are university students studying marketing. They have been presented with two investment opportunities.

Investment One

The first opportunity is to invest in a new restaurant. If the investment is found to be worthwhile, they intend on having their opening night on 3 August, 2018.

Restaurant Purchases and Expenses

The investment requires the purchase of the following assets to begin trading:

• Machinery/Equipment $110,000

• Furniture (tables and chairs) $30,000

Vehicle (deliveries)

$43,000

Utensils (cups, plates)

$18,000

Produce (for 1 week)

$10,000

Drinks (for 1 month)

$20,000

The non-current assets would need to be purchased on 1 June to allow Mark and Paul to set up the restaurant in time for the big opening. As of 1 June, Mark and Paul will have $80,000 in their bank account.

Mark and Paul will be obtaining their produce and drinks from suppliers who allow them to purchase on credit. Based on their anticipated sales, they will be required to purchase $10,000 of produce for 1 weeks’ worth of trading which will commence on 1 August and will continue each week. They will be required to repay this by the end of August.

They will also be purchasing 1 months’ worth of drinks for $20,000 which will commence at the beginning of July and will continue each month. They will be required to repay their drink supply account off within 90 days of every purchase. They forecast that they will pay off 10% in the current month of purchase, 45% off 60 days after purchase and 45% off 90 days after purchase. For their first drink purchase, for example, they will repay 10% of the account off in July, 45% off in August and 45% off in September.

Mark and Paul will be managing the restaurant themselves and will be hiring 3 casual staff who will work 6 hours a day, 6 days a week at $23.00 an hour. Mark and Paul will be withdrawing $10,000 each per month from the businesses bank account as owner drawings.

It is anticipated that the total overhead costs per month (beginning in June) will be $5,000.

Restaurant Sales

Mark and Paul believe, on average, that they will be able to sell 20,000 meals in the first month of trade, 18,000 in the second month, 18,000 in the third month and 22,000 in the fourth month at an average sale price of $45.00. They forecast that drink sales will be triple the amount of meals per month and will be at an average sale price of $6.00.

Investment One Requirements

a. Identify and explain the nature and scope of investments to Mark and Paul.

b. Using the information presented above, prepare the following budgets for June, July, August and September:

• Sales budget

• Cash budget

• Labour budget

(Assume there are 4 weeks per month)

c. In your own words, critically analyse the three budgets and the forecasted information that Mark and Paul have provided. Provide a discussion on what each of these budgets say about their new potential investment (Hint: chapter 9)

d. What practical issues should Mark and Paul consider when making their decision to invest in the restaurant? (Hint: chapter 12).

Investment Two

The second opportunity is to invest their funds in a new business development on the Gold Coast with other venture-capital investors. The investment requires $390,000 from Mark and Paul. The investment promises net cash inflows over the four years of the investment of $100,000, $230,000, $190,000 and $140,000 respectively. The cost of the funds is 12 per cent.

Investment Two Requirements

a. Calculate the net present value, accounting rate of return and payback period (show all workings) and identify what they say about this investment (Hint: Chapter 12).

b. Compare and contrast the two investments. Which investment would be best for Mark and Paul? (Hint: Are the investments comparable? Do they have enough funds? Are the identified nature and scope of investments and the practical issues associated with the investments going to be an issue for Paul and Mark? Are these investments suitable for Mark and Paul’s needs? Do Mark and Paul have enough skills and time?).

Answered Same DaySep 29, 2019

Solution

David answered on Nov 25 2019
93 Votes
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Executive Summary
Table of contents
1.0 Introduction
Two investment opportunities are presented to two university marketing students. First opportunity is to invest in a new restaurant where they are intended to open their business from 3rdof august. while the second opportunity is to invest their fund in a new business development on the Gold Coast with other venture-capital investors.
Purpose
This report is approved by Mr.AvishekPoddar, student of USC Melbourne. The vital purpose of this report is find of the best possible investment done by two university marking students, Mark and Paul comparing the different basis of factor such as plans, project, profit, budget, cash flow many more.
1.1 Scope
The scope of this report is to analyse and find out the best possible investment among two investments. The good investment for the better profitable cash flow is suggested which in return the makes their investment by analysing different budgeting factors.
1.2 Limitations        
The given report is limited to analysis, evaluation and comparison between two investmentsdone by Mark and Paul. Practical issues are most considerablewhile making the budgeting decision in their investment. Also the identification and explanation for the best investment is taken in due consideration comparing the practical issues.
3.0 Nature and Scope of Investments
Investment can be defined as the process or action of investing to the outcome the profitable amount. All the investment decisions are ca
ied out by the manager whether the investment is small, large or entities. For example, in the investment one, Mark and Paul manage all the investment by themselves. Investment requires the huge amount of resources in projects, property, plant and equipment such as funds, staff time and much more. For example, Mark and Paul use resources such as Machinery/Equipment, Furniture (tables and chairs), Vehicle (deliveries), Utensils (cups, plates), Produce& Drinks to make their investment profitable.
There may be the risk and uncertainty that the stock inability to cost project accurately and to predict operating revenues and costs. Since here in investment one all the investmentsare assumed which may not be practical so there is a certain risk factor, as well as the investment one, is based on partnership so there may be the clashes among them regarding the money invested.
 Investments normally has long time span which initially may delay cash layout. For instance, Mark and Paul are allowed to buy their products and meal in credit by suppliers initially which in return they may not be able to generate their profit unless the cash flow out is done so there is a long wait to turn investment into profit cash flow (Birt, 2012).
4.0 Investment Opportunity One Budgets
3.1 Sales Budget
Sales budget or fees budget is defined as the input variable which sets the expected level of activity for the budgeting period and considered as an important for many of the other budgets (birt, 2012). As per Mark and Paul investment in a restaurant the sales budget is calculated as below:
     Sales Budget
     Meals
     June
     July
     August
     September
     Sales unit*S.P
     
     
     900,000.00
     810,000.00
     Drinks
     
     
     
     
     Sales unit*S.P
     
     
     360,000.00
     324,000.00
     Total Sales Budget
     
     
    $ 1,260,000.00
    $ 1,134,000.00
As per the calculated figures, there was on sales in the month of June and July because the trading is meant to commence in the month of august. In the month of august the salewas $ 1,260,000.00 and that of September was $ 1,134,000.00. This value represent bad investment as the figure of sale was decreased in the month of September although their expenses were same each month.
3.2 Labour Budget
    LabourBudget
     
    June
    July
    August
    Septembe
    Labour hour*Labour Rate
     
     
     9,936.00
     9,936.00
    2. Labour Budget:
    Month
    June
    July
    August
    Septembe
    Wages
    $0.00
    $0.00
    3 staff * 6 hours * 6 days * 4 weeks * 23 per hour = $9936.00
    3 staff * 6 hours * 6 days * 4 weeks * 23 per hour = $9936.00
    
    
    
    
3.3 Cash Budget
    Cash...
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