Business Decision Making: Investment Appraisal Techniques

BUSINESS DECISION
ASSESSMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
Business decision making............................................................................................................3
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Decision making is considered as most essential part of firm that determines success of
entity (Varghese, 2017). This is the process of taking right action that may aid company in
accomplishing its goal and sustaining in market for longer duration. Financial team of firm takes
support of investment appraisal techniques to make accurate decision. Present study is based on
ABC Plc which is the computer software entity. Current assignment will use investment
appraisal technique to analyses viability of two projects.
TASK
Business decision making
Whenever firm plans to invest in any project then first it has to determine the suitability
and feasibility of that project so that entity can determine where it would be right decision or not.
NPV (Net present value)
This is considered as most common technique that evaluates future cash flow that can be
generated by business by investing in current project (Wijne and et.al., 2019). It calculates actual
difference between present and future value of cash flow and accordingly investment manager
makes decision of investment in particular project. This is appropriate method as it helps in
determining value of investment and also considered time value of money. ABC Plc has two
options of investment in the first option value of NPV is found 17831 whereas in second project
NPV is 24430. That reflects that investment in project 2 would be best option for ABC company.
As return on investment is high in this project. As in project 1 cash inflow for 1st year is 8000 an
for 2nd year is 12000, 3rd year it is 16000 and for next two years it is 20000 and 30000.
Discounted rate is 12% and initial investment in this project is 40000. After calculating NPV it is
found that value of NPV is 17831. On other hand cash in project 2 for next 5 years are 10000,
20000, 25000, 30000, 40000. Initial investment in project2 is 60000 hence value of NPV in this
project 2 is 24430 (Chaysin, Daengdej and Tangjitprom, 2016). Hence this reflects that future
value of cash flow would be high in project 2 hence ABC strategic managers has to make
investment in this project in order to get more return.
Project 1
Net Present Value