Accounting and Finance for Decision Making

Table of Contents

Accounting and Finance for Decision Making……………………………………………………………………………….……1

Answer to Question 1………………………………………………………………………………………………….………………….…3

The motivation of proposal investment………………………………………………………………………………………….….3

Answer to Question 2: …………………………………………………………………………………………………………….…...….4

Investment appraisal using both quantitative and qualitative Information………………………………...…....4

Answer to Question 3……………………………………………………………………………………………………………….….…...6

Risk and Return……………………………………………………………………………………………………………………………….…6

Answer to Question 4: ………………………………………………………………………………………….…………………..………7

Conclusion and Recommendation………………………………………………………………………………………………..…...7

Reference List………………………………………………………………………………………………………………………………….…8

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Answer to question 1:

The motivation of proposed investment

A rare opportunity to learn the importance of international companies, as one of the oldest

and biggest foreign multinationals doing business. With over 400 brands focusing on health

and well-being, Unilever is one of the largest consumer goods companies in the world. These

products range from nutritionally healthy foods, delicious ice creams, inexpensive soaps,

luxury shampoos, and home care products for daily life. About 2.300 buildings in 114

countries are managed by the Real Estate and Facility Management Team of Unilever.

Unilever has chosen Plan on for its global IWMS after its selection process.Unilever's

mission is to improve the working conditions of low-wage workers all over the world. As a

result, they want to ensure that by 2030, everyone who directly provides goods and services

to Unilever earns at least a minimum wage or benefit. Unilever will work on institutional

transformations and the overall recognition of living wage policies through procurement

activities, partnerships, and advocacy with our manufacturers, other businesses, governments,

and NGOs.

By 2025 Unilever will help 5 million small and medium-sized companies in our retail value

chain by offering them access to information, funds, and technology. Many retailers operate

their businesses, shops, kiosks, and microenterprises, which sell on the street or door-in-door,

have been collaborating in the company. With digital infrastructure, financial and service

inclusion, and public-private partnerships that encourage social entrepreneurship, Unilever

will help them develop their businesses and income.

Unilever plans an investment of $33.00,000 and an additional working capital of $40,000.

Unilever used scientific methods in its analysis of investment policy, including net current

value and the internal return rate.

  Cash flows = Profit after tax + Depreciation – capital expenditure – Change in

working capital + recovery of working capital + scrap value

 Profit after tax may be estimated as follows:

 Profit after tax = Revenue – variable cost – fixed cost – Other fixed losses – taxes

 Revenue may be estimated as number of units sold multiplied with price of units

while variable cost may be calculated as sum of direct material and direct labour.

Answer to question 2:

Investment appraisal using both quantitative and qualitative information

The absence of a facility for investors to evaluate investment proposals is difficult. As a

result, the primary analysis is based on investment capital, capital structure, income, and

estimates of costs. Since the project has not yet started, the date and estimates of revenue and

expenses for the project are unknown. As a result, various approaches to the project

assessment, including a present-value net process, an internal return rate approach, and a

payback period approach, are applied.

Although it is important to use quantitative factors in decision-making, qualitative factors can

prevail over quantitative aspects. For example, in a small start-up medical device company, a

major manufacturer of medical equipment recently invested $ several million. However, the

technology used for their device was so crucial for us that we couldn't override the

investment." This is an example of qualitative factors that outweigh quantity factors (strategic

value for the company) (negative NPV).

The amount of project cash flows is offset by an appropriate burden rate in the net present

value process. When considering the proposal, the hurdle rate is the cost of capital. It can also

be called the opportunity cost of the business. In general, companies view a positive net
present value project (NPV). When an investor finds many net worth investment projects, the

investor usually selects the project with the highest net current value; (Berk et al., 2015).

The rate of zero in all future cash flows is defined as the internal return rate. When assessing

investment proposals, the internal rate of return should be greater than the threshold rate. The

word "threshold rate," also known as "opportunity cost" or "hurdle rate," refers to the

weighted, mean capital cost. The higher the internal rate of the project, the better the net

present value strategy. There are also some disadvantages to the internal rate of return. If the

project's cash flow changes the signs in different years, the internal rates of return can

provide us with many values. This is because there is more than one true root in the equation

solution (Magni, 2010). Multiple sources are resolved using the concept of a modified

internal rate of return or MIRR. This amounts to all the negative cash flows at a given rate at

the beginning of the cash flow. It also uses money's time value to predict all positive cash

flow at the end of the period at a certain point. The rating that equals the potential value of

the positive cash flows for the last duration is calculated as the rating of reduced negative

cash flows (Lin, 1976).

The profitability index is another measure in capital budgeting used to prioritize projects.

This is the return on investment. Investment should be viewed as projects with a higher

profitability index than one. However, the total benefit derived from the project is not

indicated (Berk et al.,2015).

The payback period for the evaluation of investments is another standard measure. In contrast

to the other two ways, reimbursement time does not take the money worth into account.

When considering any investment strategy, the investor must choose a payback time

threshold. The project should be selected if it’s payback period is less than the threshold
value: the shorter the payback period for the project, the better the project (Arthur and

Steven, 2003).

The reduced reimbursement period is a further change in the payback period. It uses a

reasonable discount rate to reduce the cash flows of the project. The reduced cash flow is

used to measure the payback period in exchange (Berk et al., 2015).

The major weakness in the payback period is that cash flows after payback are not accounted

for. Moreover, if the project is implemented, it does not estimate the total profit earned for

the company (Berk et al., 2015).

The results of the investment assessment are focused on the products and the decision-

making process. Investment requirements are set for the organizations to evaluate investment

projects. The problem with three critical methods of investment assessment is that they can

produce specific conflicting results.

Answer to question 3:

Risk and return

The Return Potential Analysis of the investment aims to determine the risk of an asset and its

potential return to a portfolio. Our overall strategy is to estimate the total return potential by

using a range of quantitative feedback and qualitative asset class evaluations. Business

portfolio managers consider the attractiveness of protection five factors: fiscal, fundamental,

mathematical, technical, and valuation. This is a measure of related volatility about the equity

baseline portfolio. In different market divisions, the prices are paid for revenues, cash flow,

sales, and the book value. The danger is measured for each asset class. Measures the chance

for a total return. Portfolio risk estimate for the sector's entire risk. Using technical metrics

and consumer feelings for the assessment of inventories. Information on a specific asset, such
as market risk, benefit, and anticipated growth in earnings. What macroeconomic variables

can impact investment, such as economic growth, inflation, and interest rates. Some measures

that can be captured with this tool include cost, risk, and correlation analysis.

According to the annual report, the international cash flow of subsidiaries should be

slandered as much as practicable and are used for the future. The future agreement will

ensure that the locked-in price is organized to make sure that pounds are purchased for the

future purpose and is very dependent on the correctness of the future exchange rate

expectations. Strong assumptions are made that are very consistent with estimates based on

the forecasts of the Spot exchange rate. When the interest rate risk is present, it is primarily

due to changes in the interest rate level.

Although there was a specific coefficient equivalent multiplied by projected cash flows to

reflect market fluctuations, the primary failure of the system is that price and demand fall

while cost increase is ignored. Consequently, the strategy should provide a sensitivity review.

To achieve a net current value for the project, the effects of each cash flow factor, such as

demand, prices, and costs, vary individually and simultaneously. Furthermore, the internal
return rates cannot be used along with a net present value formula because the cash flow

doesn't change its symbol. On the other hand, the cash flows have to account for each factor's

exposure.

Answer to question 4:

Conclusion and recommendation

The net current value of the project is $1,70.26.363.7, with an internal return rate of 73.36%.

The modified domestic return rate is 25.5 percent. This investment is a decent one with a

return period of 1.83 and a profitability index of 5.16. The net actual value of the project is

$49.99,422.8 with an internal rate of return of 60.86% because of the assurance equivalent

coefficient compounds cash flows. The inner return rate was changed to 16.5%. This

investment is a decent one with a payback period of 2.25 years and a profitability index of

1.515. Furthermore, the annual return on employee resources exceeds 30%.

The project is worthwhile because the investment's net present value is positive, and the

internal return rate is higher than the discount rate. Also, worth mentioning is the

considerably more significant return on capital employed than the 30 percent investment

threshold. The company should therefore approve the project.

Reference list

Marketing Strategy and Sustainable Plan of Unilever

https://www.researchgate.net/publication/343539636_Marketing_Strategy_and_Sustainable_Plan_
of_Unilever

Corporate Diversification Effect on Firm Value (Unilever Group Case Study)

http://aeconf.com/Articles/May2015/aef160109.pdf
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Kengatharan, L. and Nurullah, M., (2018) Capital investment appraisal practices in the
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Kolawale, O.A. and Grace, O.O.B., (2017) Assessment of viability appraisal practice by
estate surveyors and valuers in lagos metropolis, Nigeria. International Journal of Built
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Unilever commits to help build a more inclusive society https://www.unilever.com/news/press-

releases/2021/unilever-commits-to-help-build-a-more-inclusive-society.html

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