Bryd Ltd runs a chain of five small supermarkets in Wales specializing in the sale of local produce. The supermarkets have been doing well in recent years, and the company has funds available to invest in a new project. The board of directors is considering three possible projects:

1. This project would involve investing in local farmers by providing them with expert consultancy advice to enable them to produce food more efficiently. This would bring some benefits to Bryd Ltd as participating farms would offer a significant discount to the company on future supplies.

2. This project would set-up cafés at two of the supermarkets, offering drinks and snacks to shoppers throughout the supermarkets’ opening hours. 

3.This project would involve setting up a gallery attached to Bryd's biggest supermarket, to sell paintings, ceramics, and other crafts made by Welsh artists. The finance director has used some investment appraisal techniques on the figures, the results of which are shown in Table 15.13.

REQUIRED:

a) Explain what is meant by payback period, ARR, and NPV.

b) Advise the board of Bryd as to which of the projects they should consider proceeding with.

c) Outline other factors that they might consider.

Transcribed Image Text:

Table 15.13 Payback period ARR (%) NPV ('000) Farmer support 5 years 8 78 Good-food caf 3 years 15 150 Art and craft gallery 4 years 12 195