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INVESTMENT APPRAISAL IN A
DEPRESSED ECONOMY
(A CASE STUDY OF CADBURY NIGERIA
PLC)
ABSTRACT
Investment appraisal in a depressed economy tries
to center on how possible it is for business men to invest in the economy with
its downward slide. It also looks at the different investment raise techniques
that can be used in appraising the different types of investment. Questionnaires
were given to twenty-five respondents of the study company which involved
primary and secondary data collection in the filed. Cad bury who air there view
about the topic and through the response made by them, the following findings
were made. The investment holders can be the directors, shareholders,
employees, the government among others. On the
totality, appraisal of investment has been discovered to head to the effective
planning and controlling of the enterprising scarce
resources. Delivering into
investment, which can maximize the shareholders wealth. That investment
appraisal should be undertaken by any company that wants to from which the
findings and the following recommendations were made.
TABLE OF
CONTENT
CHAPTER
ONE
Introduction
1.1
Background
of
Study
1.2
Statement
of the study
1.3
Objective
of the
study
1.4
Research
Question
1.5
Scope of
the
study
1.6
Significance
of the
study
1.7
Historical
development of Cadbury Nigeria PLC.
1.8
Merit and
demerit of investment appraisal
1.9
Definition
of terms
Reference
CHAPTER TWO
literature REVIEW
2.1
Introduction
2.2
Definition
of investment appraisal
2.3
Area of
investment
appraisal
2.4
Procedure
for investment appraisal
2.5
Reasons
for investment
appraisal
2.6
Decision
to
invest
2.7
Investment
appraisal techniques (TYPES)
2.8
Other
methods of investment
appraisal
2.9
The
effect of inflation of investment appraisal
2.10
Problems
of Investment
Appraisal
CHAPTER THREE
Research design and
methodology
3.0
Research
Design
3.1
Areas
Selection for study
3.2
Description
of Research Instrument
3.3
Sample
size
3.4
Conduct
of the field
work
3.5
Analysis
procedure
References
CHAPTER
FOUR
Analysis, interpretation and
presentation of data
Introduction
4.1
Data
analysis and interpretation
4.2
Analysis
CHAPTER
FIVE
Summary of findings,
conclusion and recommendation
5.1
Summary
of major findings
5.2
Conclusion
5.3
Recommendations
5.4
Limitation
Appendix 1
Appendix II
Bibliography
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
OF THE STUDY
Different schools of thought on the reasons for the
existence of a business organization. While some believe that profit in
the sole reason for existence, other believe that a business exist in order to
survive the vagaries facing the business and its owners.
With proper evaluation of this school of thought,
one would be persuaded to believe that the perceptions of this various schools
of thought about the reasons for the existence of a business entity an be
likened to the stony of the five blind men who were ask to inspect an elephant
with each giving an account of the elephant with the perception of the area he
could feel with his hands. It is therefore with a view to creating uniformity
in the perception of managers for the reasons for the existence of a business
entity that the great management philosopher, Peter F. Drucker in his book “The
nature of management” propounded eight reasons for existence of business
entity.
The reasons stated are;
i.
Profitability to make profit
ii.
Productivity: To produce consumable
goods and provide essential services to its customer.
iii.
Innovation: To experiment
and generate new ideas of production of goods and deliverance of services.
iv.
Financial standing: To improve the liquidity status of the company at any point
in time.
v.
Physical resources: To ensure that the resources
employed in the management of the organization are not only maintained but also
under safe custody and made easily available for production.
vi.
Workers attitude and performance: The
workers stand as on epitome of the organizational attitude hence polished
manner and cheerful attitude is expected to win customers for the organization.
vii.
Manager performance and development: The managers
are the catalyst upon which the workers act and the enhanced performance of the
manager would be testament to high motivation of he work force and invariably
in proved productivity.
viii. Social
responsibility: The business entities do not operate in a vacuum.
Due to the fact that it obtain environment and simultaneously release output
for consumption of its customers, then it has to be sensitive to the services
of the environment in which it operates and this would amount to being socially
responsible to its consumers and environs.
Among the reasons given by Drucker one fact still
remain glaring that for a business to exist, it has to stake its fund either
within or outside he organization with the expectation of returns in order to
meet up with the continuity or going concern objectives.
1.2 STATEMENT OF PROBLEM
The fact that the business entrepreneur states his
money in ventures which would eventually yield returns for him places him in a
position which means he has to be frugal in his spending and avoid frivolous
spending which might eventually lead to the devise of the organization. Being
frugal in his spending does not mean that the financial manager would be
miserly in his outlook to spending but that the venture in which he would
invest would improve the financial position of the organization can only be improved
if the financial manager invest in projects that are profitable and avoid as
much as possible loss bearing investments unless it improve the goodwill of the
organization.
Definition of Investment
Appraisal
It is the provision of information that will assist
management in making of decisions concerning the investment of capital example
includes:
1. Replacement
decision
2. Investment for
expansion
3. Investment for
product improvement and/or cost reduction.
4. New venture
5. Strategic
investment.
Investment appraisal therefore is that technique
devised by the financial managers as a yardstick for determining the
profitability or otherwise of any venture he dabbles into.
1.3 OBJECTIVES OF THE STUDY
The embankment of this area of study stems from an
appreciation of techniques of investment appraisal and an innate desire to
share the knowledge with those it might be useful to. The paramount objectives
of the study could however be narrowed down to.
i.
Reference material: To provide a handy material on
which other research students can fall back on for reference purpose.
ii.
Discussion of Techniques: To bring into light those investment appraisal
techniques that are in existence.
iii.
Merit and Demerit: To highlight the
strengths and weakness of the various investment techniques.
iv.
Knowledge acquisition: The
dissertational affect is as well directed towards further expansion and
acquisition of knowledge based on appraisal of investment
v.
To lay
fear of future managers who makes judgmental decision.
1.4 RESEARCH
QUESTION
1. What level do you
occupy in the management hierarchy?
2. Which department do
you belong to in your organization .
3. What is your educational qualification?
4. How often do you think
investment should be appraisal?
5. do you agree that
some of the presently available investment
appraisal techniques are out dated
and could be improved upon?
6. what do you
consider the most superior of the
appraisal techniques of the traditional and
modern method?
1.5
SCOPE
OF THE STUDY
There seem to exists a limit less lists of
researchable area on investment appraisal. An appreciation of this fact has
however necessitated that restriction of the research work into an appreciable
framework.
The research effort is therefore narrowed down to:
i.
The dissertation of the various investment appraisal techniques, which aids
prudent decision-making.
ii.
Te reviews of the various problems, which are likely to be encountered during
investment appraisal.
iii. The
establishment of variable investment opportunities.
iv. Effect of
investment appraisal on the wealth of the shareholders.
v. Improvement
of the existing investment appraisal techniques.
The discussion
of investment appraisal techniques in
relation of this project work is form
the adoption of the techniques of
cadbing Nigeria ltd. Other organization
might posses more useful or
even complex ways of appraising
investments. Despite this constraint much
effort will be exerted may trying to
establish technique which may not
necessary be applied by cadbing Nigeria
plc.
1.6
SIGNIFICANCE OF STUDY
The Nigerian economy is dwindling drastically as
regard finance with the currency of the country, the Naira exchanging to the
dollar at close to N100. A dwindle economy with a tint of political instability
would naturally discourage flow of investment and a halt in the flow investment
would lead to inflation and all its attendant symptoms which highlighted by a
depressed economy. Therefore incumbent on the financial managers ensure that in
a depressed like Nigeria, not only should investment opportunities be sought
but should also be critically appraised with other existing opportunities so
that optimum use of the limited finance of the organization is achieved. The
problem is not peculiar to Nigeria or the developing countries alone, the
importance of investment appraisal is even more appreciated in developed
countries where the ideas were passed down. This therefore the objective of
this study to bring into lights the usefulness of investment appraisal.
1.7 HISTORICAL
DEVELOPMENT OF CADBURY NIGERIA PLC.
Cadbury Nigeria plc was incorporated on the 9th
of January 1965 to engage in the food processing business. Its major product
lines consist of food, food drinks, sugar confectionery, chocolate and
seasoning cubes. The Cadbury Schweppes group of United kingdom which provides
the company with technical services under a technical service agreement,
approved by the national office of technology acquisition and promotion (NOTAP)
holds 40% of the issued share capital while the balance in held by the Nigerian
populace.
Due to the fast growth of the company and its need
to spread its tentacles to the nooks and crannies of Nigeria, the company has
been able to embark on a massive expansionary tactic with branches. In states
ranging from Benin City, Enugu, Jos, Kaduna, Kano to states like Owerri, Port
Harcourt and Warri.
The companies also have branches in other countries
like Cameroon, Coted’ivaire and Switzerland.
The company in al ramification can be termed as a
big company, according to section 376 (2) of the companies and Allied matter
decree of 1990 (CAMD) stated that a company would be stated to be a small
company where it has the following features:
a. Private company
limited by shares
b. Company with it
turnover not exceeding N2m
c. Net asset
not more than N1m.
d. Non of it
shareholder is a foreigner.
e.
Government has no stake in it activities or a government agent.
f.
The directors holders not less than 51% of the equity share capital of the
company.
Cadbury Nigeria Plc is a factory from the
provision of the decree with respect to their 1997 financial report; the
company made a staggering sum of N17B as it turnover and whooping sum of N755m
as profit before tax and N640m as profit on ordinary activities after tax.
For a company that parades such an enviable financial
success despite an economy fraught with strikes and protest, it is therefore
important to keep such a position in order to ensure that the confidence of the
shareholders in the management of the company is boosted, with a bid to achieve
this ostentatious desire of the management, the company utilizes to the full,
the effort of decentralization, which enables the various branches to operate
fully as an independent entity with negligible interferences from the head
office.
The organization of Cadbury Nigeria Plc entails the
division of work between officer into different department. Due to the
sensitive role which the finance of the organization plays, a separate
department is established to effectively make decision about how the finance
for the organization should be effectively utilized so that optimal result is
achieved.
1.8 MERIT OF INVESTMENT
APPRAISAL:
The following are the merit, which the use of
investment appraisal brings.
i.
Viability of the investment would be ascertained before committing funds to it.
ii.
Adoption of techniques like sensitive analysis will ensure that management
adequately under stands which cost, whether variable or fixed is more sensitive
and needs more attention than others.
iii. Improved
financial position of the enterprise can be achieved.
iv.
Acquisition of more experience by the financial manager and the subordinate who
might desire to fill managerial vacancies in future.
v.
Improvement
of profitability of the company, which leads to giving of, more returns to the
share holders.
1.9 DEFINITION OF TERM
Investment appraisal is not an all sweet affair,
despite the advantages it possess, it has some set back and some of these set
backs are:
i.
It may lead to unnecessary waste of precious time in making decision, as to
which investment where investment needs a speedy decision.
ii.
Appraisal of investment incorporates some assumption, which may not hold
reality.
iii.
Avoidable data collections expenses, which may eventually turnout, to be force.
iv.
Investment appraisal does not necessary guarantee that an investment would be
worthwhile, it only serves as a pointer to worthwhile ness of n investment
“Ceteris Paribus”.
1.10 DEFINITION OF TERM
Investment appraisal: evaluation
of the attractiveness of an
investment proposal , using methods such as
average rate of return, internal rate
of return (IRR) net present value
(NPV), or payback - period investment
appraisal is an integral port of
capital budgeting (see capital budget) and
is applicable to areas even where the
returns may not be easily qualificable
such as personnel marketing and training.
Depressed economy: A depressed
economy can be activities of all
types are operating at a lower level
than is normal or expected . I
believe you should look into
the topic of economic depression for
greater detail, and perhaps attach some
number to the description.
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