Business Decision Making

This document discusses the process of decision making in business, focusing on the calculation of payback period and net present value. It explores the advantages and disadvantages of these methods and emphasizes the importance of considering financial and non-financial factors in decision making. The document also provides a case study of A&B plc, a restaurant chain, and their investment decision-making process.

Business Decision Making

Contents
INTRODUCTION.......................................................................................................................................3
MAIN BODY..............................................................................................................................................3
1. Calculation of payback period.............................................................................................................3
2. Calculation of Net Present Value (NPV).............................................................................................4
3. Analysis...............................................................................................................................................5
CONCLUSION...........................................................................................................................................7
REFERENCES............................................................................................................................................8

INTRODUCTION
Decision-making is the method by defining a choice, collecting data and reviewing
qualitative technique. Enterprises often make difficult decisions. Executives agree to recruit or
fire personnel; sales representatives assess the most valuable lead generation, professional IT
executives select the right applications for their activities. Such individuals all make decisions
until seeking a workable solution (Travers, 2017). They are policy leaders. "To accomplish
overall or administrative goals and objectives a determination can be described as a way to
proceed intentionally selected from a collection of equivalents. This assignment based on the
A&B plc restaurant chain which is established in UK and also conducts their services in Europe.
The company prepares plan for the investment and have two option project A and Project B. to
select right project apply NPV, payback period method to take right decision in regard of
business. Along with identify financial and non financial factors that help in decision making
procedure.
MAIN BODY
1. Calculation of payback period
Payback period: The collection period is the length of time needed by a company to cover its
additional cash evaporation for the financing activities produced (Park and et.al, 2015). There are
2 methods the net income can be measured that are:
 Average method: Segregate the projected annual average cash inflows into relevant
aspects asset investment. This strategy works well because the money comes in following
years are projected to be stable.
 Subtraction technique: Deduct every single query cash inflow from of the net cash
inflows before the repayment date is reached. The strategy works well when investment
returns in following years are likely to differ.
Year
Project
A
Cumulativ
e Cash
flow
Project
B
Cumulativ
e cash
flow

0
-
12000
0 -
-
15000
0 -
1 30000 30000 40000 40000
2 35000 65000 45000 85000
3 40000 105000 50000 135000
4 60000 165000 75000 210000
5 90000 255000 80000 290000
Formula:
Payback period: Year before full recovery + unrecoverable cost / cash flow during the year
Project A = 3 + £ 15,000 / £ 60,000
= 3 + 0.25
= 3.25 year
Project B = 4 + £ 6,000 / £ 75,000
= 4 +0.08
= 4.08 Year
2. Calculation of Net Present Value (NPV)
Year
Projec
t A PV Factor DCF
0
-
12000
0 1 -120000
1 30000
0.877192
98
26315.7
9

2 35000
0.769467
53
26931.3
6
3 40000
0.674971
52
26998.8
6
4 60000
0.592080
28
35524.8
2
5 90000
0.519368
66
46743.1
8
42514.0
1
Year
Projec
t B PV Factor DCF
0
-
15000
0 1 -150000
1 40000
0.877192
98
35087.7
2
2 45000
0.769467
53
34626.0
4
3 50000
0.674971
52
33748.5
8
4 75000
0.592080
28
44406.0
2
5 80000
0.519368
66
41549.4
9
39417.8
5

3. Analysis
Advantages and Disadvantages of NPV and Pay Back period
Payback period: The "payback period process" is a way for the company to find out that
how working capital from various ventures will come in, but which one would get the fastest
returns on upfront outlay, considered the "payback period."
Advantage: This is completely important in the corporate world that should have the sufficient
resources to be able to carry out everyday activities and make improvements in the country's
development. A company will easily are in difficulty if they have more than enough of their
money being invested in funds and no opportunity to do something about it easily (Dang, 2018).
Disadvantage: Neither company would be able to depend on this approach for their alternative
investments if they want a successful life instead of them. Use a number of approaches is often
best for making critical choices.
Net present value: NPV seeks to compare the value of investment portfolio potential
retained earnings over the cost of production. The NPV method's present value function reduces
potential working capital to the modern-day price. When it is optimistic to deduct the original
cost of funds from either the amount of the existing cash flows, otherwise the expenditure would
be beneficial (Aritz and et.al, 2017).
Advantage: Investment opportunities also happen in the business world. The Net Present
Value does often quantify a venture capital firm. Companies may also use this calculator to
measure whether a potential investment worth’s multiple disciplines. Using this method, the
statistics produced would let us know whether one venture would be more successful than
someone else. It allows the general choice for lenthy-term development and sustainability to be
chosen whether from a percentages or total monetary standpoint.
Disadvantage: Also are cash inflows and outflows use while measuring a Net Present Value.
Because these are the main determinants of the calculation, the price of incentive must also be
calculated. This estimate is characterized as a cost occurring by not embracing options it could
have provides a strong revenue increase. Some businesses do not even attempt to quantify those

expenditures. If the options are difficult to assess, then the NPV findings don't always have the
level of competence or validity required (Costanzo and Di Domenico, 2015).
Financial and Non financial factors
When A&B plc takes important decision that time focus on the financial and non
financial factors that impact in direct manner. Financial factors include work satisfaction,
standard market laws & fair practices regulations, relations with vendors or consumers. In
understanding these factors, A&B Plc's management will make an educated decision that will
also impact the decision-making processes of the stakeholders. Financial concerns comprise
project gain projections, processing times, initial expenses, productivity etc. The investment
appraisal methodology helps stakeholders to quantify taxable income and even what benefits
they reap from it if those who pay on that as well (Wu and et.al, 2016).
In the above calculation, the payback period for the Dishwashing Program is estimated to
be 3.25, and 4.08 years for the software project. For A&B Plc, Project A is more attractive than
Project B, an indicator of this method' effectiveness. Better recovery period is favorable for the
consumer as the consumer eliminates the running costs within a short time period. Project A has
an NPV of 42514.01 which really is 39417.85 for Project B NPV. As shown by this method of
financial planning, Project B seems to be more suitable for A&B Plc because it has a higher NPV
and was desirable for most any expenditure.
CONCLUSION
As per the above report it has been concluded that a business take different types of
business to operate successfully and get growth for longer period of time. There are restaurant
chain identify two projects and which project provide good results in particular period of time for
this apply payback period and net present value. Along with identify their benefits and
drawbacks to select right project as per the requirements. Moreover, for the investment require to
focus on financial and non financial factors in order to make right decision.

REFERENCES
Books and Journals
Aritz, J. and et.al, 2017. Discourse of leadership: The power of questions in organizational
decision making. International Journal of Business Communication. 54(2). pp.161-181.
Dang, M. N., 2018. A New Decision Making Model Based on the Made in Vietnam Lean
Management Philosophy. Economics and Sociology. 11(1). pp.44-66.
Travers, M., 2017. Business as usual? Bail decision making and “micro politics” in an Australian
magistrates court. Law & Social Inquiry. 42(2). pp.325-346.
Wu, J. and et.al, 2016. Investigating the determinants of decision-making on adoption of public
cloud computing in e-government. Journal of Global Information Management
(JGIM). 24(3). pp.71-89.
Costanzo, L. A. and Di Domenico, M., 2015. A Multi‐level dialectical–paradox lens for top
management team strategic decision‐making in a corporate venture. British Journal of
Management. 26(3). pp.484-506.
Park, J. and et.al, 2015. Energy-saving decision making framework for HVAC with usage
logs. Energy and Buildings. 108. pp.346-357.
Bals, L., Kirchoff, J. F. and Foerstl, K., 2016. Exploring the reshoring and insourcing decision
making process: toward an agenda for future research. Operations Management
Research. 9(3-4). pp.102-116.
Kurilovas, E., 2020. On data-driven decision-making for quality education. Computers in Human
Behavior. 107. p.105774.