08-18, 2022

本文是會計專業的Essay范例，題目是“Archer's Organic Foods Plc Investment appraisal（Archer的有機食品有限公司投資評估）”，Archer有機食品有限公司是有機食品的生產商和分銷商。該公司正尋求通過收購英格蘭北部的一個農場來擴大業務。本報告采用多種投資評估方法分析了兩個農場的財務可行性。這兩個農場在初始投資、銷售和成本上有所不同。方案1農場的永久所有權將在項目開始時獲得。選擇2的農場將以10年租約的形式出租，并支付定金和年租金。該報告通過評估四種投資評估方法的結果和優缺點，對農場的最終選擇提出建議。

**I. Introduction****介紹**

Archer’s Organic Foods plc is a producer and distributor of organic foods. The company is looking to expand the business by acquiring a farm in the North of England. This report analyses the financial viability of two farms by using a number of investment appraisal methods. The two farms differ in their initial investments, sales and costs. The freehold of option 1 farm will be acquired at the beginning of the project. The farm in option 2 will be taken on a 10-year lease with deposit and annual rent payments. The report makes a recommendation on the final selection of a farm by evaluating the results, strengths and weaknesses of four investment appraisal methods.

The four investment appraisal methods used in this report are the Accounting Rate of Return (ARR), payback period, Net Present Value (NPV) and Internal Rate of Return (IRR). The results of the four investment appraisal methods may not be similar because of differences in their approaches and calculations. Hence, it is beneficial to use more than one investment appraisal method and understand the benefits and limitations of each method before making a final decision.

**II. Investment appraisal methods2投資評估方法**

The four investment appraisal methods can be classified into two main categories. The ARR and payback period are non-discounting methods whereas the NPV and IRR are discounting methods. The ARR method measures the accounting profit rate by dividing the average income by the average investment (Hansen and Mowen, 2007, p. 568). The method is simple to use but has major limitations. It ignores the time value of money which is a major drawback in case of projects with long lives. Also, a benchmark rate is required for comparison.

四種投資評估方法可以分為兩大類。ARR和回收期是非貼現方法，而NPV和IRR是貼現方法。ARR方法通過將平均收入除以平均投資來衡量會計利潤率(Hansen and Mowen, 2007, p. 568)。這種方法使用簡單，但有很大的局限性。它忽略了金錢的時間價值，這對于長壽命的項目來說是一個主要的缺點。此外，還需要一個基準利率來進行比較。

The payback period calculates the time required to recover initial investment from the operating cash flows of a project (Brigham and Houston, 2007, p. 373). Shorter payback period projects are preferred as they generate cash equal to initial investment in a shorter duration and this can be viewed as a proxy of risk.

However, the payback period method ignores the time value of money (Kinney & Raiborn, 2011, p. 655). It also ignores the cash flows after the payback period which could result in a selection of a project that adds less value.

The NPV method calculates the net value of a project by discounting the cash flows at a rate which reflects the risks of those cash flows. The discounting of the future cash flows is a major advantage of the NPV method over the non-discounting methods. This is very important for valuing the two alternatives as cash flows are spread over 10 years.

The drawback of the NPV method is that it assumes constant gearing to maintain same cost of capital. This rarely happens as cash inflows over the period change the gearing. A company will have to issue debt regularly to maintain same gearing (Delaney, 2008, p. 37). This is difficult to do due to administrative issues and costs. It is also not easy to calculate cost of capital that is used for discounting cash flows (Howe, 1992, p. 34). Finally, the NPV method is not useful on its own when a company faces capital rationing. The profitability index may have to be used along with the NPV to evaluate investments in a capital rationing scenario.

NPV方法的缺點是它假定固定的負債以保持相同的資本成本。這種情況很少發生，因為該期間的現金流入會改變杠桿率。公司將不得不定期發行債務以保持相同的負債(Delaney, 2008，第37頁)。這是很難做到的，因為行政問題和成本。要計算用于貼現現金流的資本成本也不容易(Howe, 1992, p. 34)。最后，當公司面臨資本配給時，凈現值方法本身并沒有什么用處。在資本配給的情況下，盈利能力指數可能必須與凈現值一起用于評估投資。

IRR method also discounts the future cash flows and gives the cost of capital at which the NPV would be zero. This gives an idea about the margin of safety that is available in terms of possible decline in the rate of return before it equals cost of capital. The limitation of the IRR method is that it can give two IRRs for same set of cash flows if the pattern of cash inflows and outflows reverses more than once during the life of a project (Brigham and Daves, 2009, p. 421). It also assumes that cash inflows during the life of a project will be reinvested at the IRR which may not be true as the firm may not have similar opportunities to invest in.

The investment appraisal methods have their pros and cons and it is useful to use more than one method to get a better picture.

**III. Results of investment analysis3投資分析結果**

The first option is the freehold acquisition of a farm at ￡1,500,000. The calculations and results of the investment appraisal methods of option 1 are shown in appendix I. It is assumed that the farm will be sold for ￡1,500,000 at the end of 10 years. It implies that the average investment over the period will be ￡1,500,000.

第一種選擇是以150萬英鎊的價格買下一個農場。選項1的投資評估方法的計算和結果見附錄一。假設該農場將在10年結束時以150萬英鎊的價格出售。這意味著在此期間的平均投資將為150萬英鎊。

ARR = Average profit / Average investment = ￡313,000 / ￡1,500,000 = 20.83%

The cumulative cash flows turn positive for the first time in year 6.

Payback period = 5 + (245,000/360,000) = 5.68 years.

The NPV of option 1 is ￡739,000 and the IRR is 19.43%.

The second option is to lease a farm for 10 years. A down payment of ￡300,000 will be made at the beginning of the 10-year period. It is assumed that the down payment will be returned at the end of 10 years. The average investment will be ￡300,000. The calculations and results of the investment appraisal methods of option 2 are shown in appendix II.

ARR = Average profit / Average investment = ￡190,000 / ￡300,000 = 63.33%

The cash flows are adjusted to reflect the fact that annual rents will be paid in advance. The rent for year 1 will be paid at the beginning and hence shown in year 0. The rent for year 10 will be paid at the end of year 9 and hence ￡150,000 cash is added back to the profits of year 10.

The cumulative cash flows turn positive for the first time in year 5.

Payback period = 4 + (160,000/190,000) = 4.84 years.

The NPV of option 2 is ￡623,000 and the IRR is 27.48%.

**IV. Analysis of results四、結果分析**

The ARR of option 1 is 20.83%. There is no benchmark available for comparison but it is significantly more than the cost of capital of 12% and hence the ARR method approves investment in option 1. The payback period is 5.68 years. Though the payback period is significantly lower than the 10-year life of the project, it does not meet the 5-year cut-off period set by the finance director. Hence, the investment in option 1 is not approved under the payback period method.

選項1的ARR為20.83%。沒有可供比較的基準，但它明顯高于12%的資本成本，因此ARR方法批準在選項1的投資?；厥掌跒?.68年。雖然回收期明顯低于項目的10年壽命，但它不滿足財務總監設定的5年期限。因此，期權1的投資在回收期法下不被批準。

The NPV of option 1 is very high and positive ￡739,000. Purchase of the farm will increase the net value of the firm by ￡739,000 over a period of 10 years and hence the investment is approved under the NPV method. Finally, the IRR of 19.43% is also higher than the cost of capital of 12% which again approves the purchase of firm.

The ARR of option 2 is 63.33% which is substantially higher than the cost of capital of 12% and hence the ARR method approves investment in option 2. The payback period is 4.84 years and it meets the 5-year cut-off period set by the finance director. The investment in option 2 is also approved under the payback period method.

The NPV of option 2 is positive ￡623,000. Option 2 is also approved under the NPV method. Finally, the IRR of 27.48% is also higher than the cost of capital of 12% which again approves the purchase of firm.

Option 2 is preferred over option 1 by the ARR, payback period and IRR methods. However, the option 1 is preferred over option 2 by the NPV method because the NPV of option 1 is more than that of option 2.

The difference results under the various investment appraisal methods are not unexpected. The ARR and payback period methods do not discount the future cash flows. This is a major drawback in this case as cash flows are spread over a long life of 10 years. Also, the cost of capital is a high 12% and not discounting the cash flows does not reflect the risk of the investment. In view of the above arguments, the results of the ARR and payback period methods should be viewed with caution.

The NPV method favours option 1 as its NPV is ￡116,000 higher than the NPV of option 2. However, option 1 uses higher initial investment and this is reflected in its IRR which is lower than that of option 2.

The company should opt for option 1 as it adds the maximum net value to shareholders. However, if funding is restricted than option 1 should be preferred because it adds higher net value per unit of investment. The net value per unit investment is ￡2.08 for option 2 as compared to ￡0.49 for option 1.

In addition to the above analysis, the investment decision should take into account few other but important points into consideration. Firstly, in the analysis of option 1, it was assumed that the farm will be sold for ￡1,500,000 after 10 years. However, the prices of land and farms have increased in the recent years. The table below shows the sensitivity of the NPV to the changes in price of the farm.

An annual farm price inflation of 6% over a 10-year period would substantially increase the NPV to ￡1,121,000. This is a significant jump. Even if the annual farm price inflation is -2%, the NPV is still positive. On the other hand, the changes in farm prices would not have any impact on the NPV of option 2. The possible significant benefit from purchase of a farm should also be included in final decision making.

Secondly, the evaluations are also sensitive to changes in cash flows. Projections are rarely met in practice (Arya et al., 1988, p. 499). It is difficult to accurately predict cash flows over a 10-year period because of a number of factors. The demand may change due to economic-wide changes. The costs of raw materials and labour may rise faster than anticipated. Adverse weather may also play havoc on the production. Hence, it is beneficial to do a sensitivity analysis of cash flows. It is assumed that the variable costs will move in direct proportion to the changes in revenues. The tables below show the sensitivity of the NPVs to changes in sales and variable costs.

其次，評價也對現金流的變化敏感。預測在實踐中很少實現(Arya et al.， 1988, p. 499)。由于多種因素，很難準確預測10年期間的現金流。需求可能會因整個經濟的變化而變化。原材料和勞動力成本的上漲可能比預期的要快。惡劣的天氣也可能對生產造成嚴重破壞。因此，對現金流進行敏感性分析是有益的。假設可變成本將與收入的變化成正比。下表顯示了npv對銷售和可變成本變化的敏感性。

The above tables show that option 2 is more sensitive to the changes in sales and variable costs. At 80% of the base case sales and variables costs, the NPV of option 1 is significant positive but that of option 2 is marginally positive. The option 2 will turn into a negative NPV investment if actual cash flows are just less than 80% of the projected cash flows.

Thirdly, the NPV is also sensitive to changes in the cost of capital. The tables below show the sensitivity of the NPVs of two options to changes in the cost of capital. Option 1 is more sensitive to changes in the cost of capital. The company should analyse the likely increases in the cost of capital over 10 years before making a final decision.

In addition to the above-discussed points, the company should also analyse some of the key non-financial matters to ensure that the investment will yield positive results. It should analyse whether there would be local demand for organic foods in case of each option. Organic foods are sold at a premium to inorganic foods. The buying power of consumers is linked to the general overall economic conditions. The UK economy is passing through a tough phase with consumers concerned about government cuts in public expenditure. This may make it difficult for the company to sell its produce in the local region.

除了上述討論的要點，公司還應該分析一些關鍵的非財務問題，以確保投資將產生積極的結果。它應該分析每一種選擇是否會有當地對有機食品的需求。有機食品比無機食品賣得好。消費者的購買力與總體經濟狀況有關。英國經濟正在經歷一個艱難的階段，消費者擔心政府削減公共支出。這可能會使該公司難以在當地銷售其產品。

The company should also consider the resources that would be involved in effective monitoring of the farm in the North as opposed to current operations in the South. Monitoring and control is important for success of an investment and long-distance could hamper it.

**V. Conclusions****結論**

The results of four investment appraisal methods did not match and there is no unanimous choice. Option 2 is preferred on the basis of the ARR, payback period and IRR methods. Option 1 is the preferred option because of its higher NPV and the possibility to gain from an increase in farm prices.

四種投資評價方法的結果不一致，沒有一致的選擇。在ARR、回收期和IRR方法的基礎上選擇2。選擇1是首選的選擇，因為它的凈現值更高，而且有可能從農產品價格上漲中獲益。

The NPVs of two options are also sensitive to a number of factors like cost of capital and changes in sales and variable costs. The NPV of option 2 is more sensitive to changes in cash flows whereas the NPV of option 1 is more sensitive to changes in the cost of capital.

**VI. Recommendations****建議**

The recommended option is option 1 because of its higher NPV and also the potential to reap even higher benefits due to increase in value of farm over 10 years. If the project does not meet sales expectations, the company will have the option to sell the farm and exit early in option 1. On the other hand, the company will end up paying lease rent for 10 years in option 2.

建議選擇方案1，因為它具有更高的凈現值，而且在未來10年里，由于農場價值的增加，它有可能獲得更高的收益。如果項目沒有達到銷售預期，該公司將在選項1中選擇出售農場并盡早退出。另一方面，該公司將在選擇2中支付10年的租賃租金。

留學生論文相關專業范文素材資料，盡在本網，可以隨時查閱參考。本站也提供多國留學生課程作業寫作指導服務，如有需要可咨詢本平臺。

相關文章

UKthesis provides an online writing service for all types of academic writing. Check out some of them and don't hesitate to place your order.