Investment Appraisal In A Depressed Economy (A Case Study Of
Cadbury Nigeria Plc)
TABLE OF CONTENT
Cover page
Title page
Approval page
Dedication
Acknowledgment
Abstract
List of table
Table of contents
CHAPTER ONE
INTRODUCTION
1.1
Evaluation of investment appraisal
1.2
Objective of the study
1.3
Scope of the study
1.4
Significance of the study
1.5
Limitation of the study
1.6
Historical development of Cadbury Nigeria PLC.
1.7
Merit and demerit of investment appraisal
CHAPTER TWO
REVIEW OF RELATED LITERATURE
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
Types of investment appraisal
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 METHODOLOGY
3.1
Methods adopted
3.2
Description of research instrument
3.3
Sample size
3.4
Conduct of the field work
3.5
Analytical procedure
CHAPTER FOUR
ANALYSIS, INTERPRETATION AND PRESENTATION OF DATA
4.1
Introduction
4.2
Data analysis and interpretation
4.3
Data presentation
CHAPTER FIVE
SUMMARY
OF
FINDINGS,
RECOMMENDATION
5.1
Summary of major findings
5.2
Conclusion
5.3
Recommendations
Appendix 1
Appendix II
Bibliography
CONCLUSION
AND
CHAPTER ONE
1.1
EVOLUTION OF INVESTMENT APPRAISAL.
Different school of thoughts 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
WHAT IS INVESTMENT APPRAISAL
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.
1.2
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.
1.3
SCOPE OF THE STUDY
There seem to exist 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.
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.
1.5
LIMITATION OF THE STUDY
The discussion of investment appraisal techniques in relation to this project
work is from the adoption of the techniques by Cadbury Nigeria ltd. Other
organization might possess more useful or even complex ways of appraising
investments. Despite this constraint much effort will be exerted in trying to
establish technique which may not necessary be applied by Cadbury Nigeria
plc.
1.6
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.
1.7
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.
1.7.2 DEMERIT OF INVESTMENT APPRAISAL:
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”.
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