Business Decision Making: Calculation of Payback Period and Net Present Value for Akwaaba Plc

This report discusses the investment appraisal techniques used by Akwaaba Plc to determine the profitability of their projects. It calculates the payback period and net present value for two alternative projects, evaluates the results, and recommends a project to select. Additionally, it explores the financial and non-financial factors affecting decision making.

Business Decision
Making

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK...............................................................................................................................................3
Calculation of payback period of Akwaaba Plc:.........................................................................3
Calculation for Akwaaba Plc Net Present Value........................................................................4
Evaluate the result computed and how decision will be taken on the basis of the above
calculatet techniques...................................................................................................................5
Determine the Non financial factors and financial factors..........................................................5
CONCLUSION ...............................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Business decision making is process in which professionals are helped to determine the
examining, weighing and choosing a path. A path which is defined earlier or at the end of a
specific period helps in making decisions based on the previous performance. In the following
report it calculates the pay back period in order to know the actual earnings from the project that
the firm will earn. Company has two alternative project one consists of bag and other consists of
shoes. The best project is selected by calculating Net present value and Payback period by using
investment appraisal technique. Further Financial and non financial factors affects the decision
making of the business (MacGregor, Schulz and Green, 2018).
TASK
Calculation of payback period of Akwaaba Plc:
By making investment in a particular project, organisation has to analyse the project and
the amount which the company will recover from the project in the life cycle of the project.
Company applies investment appraisal techniques to know the actual long term profitability from
the project. Pay back period refers to the time taken by the project in recovering the initial
amount investment in the project. In method helps in determining the amount invested by the
company (Newing, Hood and Sterland, 2020).
Year Project A – Bags
Net cashflow £
Cash flow Cumulative cash flows
0 -180000 0
1 48,000 48000
2 62,000 110000
3 85,000 195000
4 1,00,000 295000
5 1,10,000 405000
Payback period of project A = Years Before Break-Even + (Uncovered Amount / Cash
Flow in Recovery Year)
= 2 years + (70000 / 85000)

= 2 + 0.82
= 2.82 years
Year Project B –Shoes
Net cashflow £
Cash flow Cumulative cash flow
0 -170000 0
1 45,000 45000
2 65,000 110000
3 82,000 192000
4 98,000 290000
5 1,10,000 400000
Payback period of project A = Years Before Break-Even + (Uncovered Amount / Cash
Flow in Recovery Year)
= 2 years + (60000 / 82000)
= 2 + 0.731
= 2.73 years
Calculation for Akwaaba Plc Net Present Value
Net present value refers to the difference between total cash inflows and outflows over
the life of an investment. It help in examine profitability of a project (Paige, Billings and
Mathur, 2021).
Project A – Bags
Net cashflow £
Year Cash Flows PV Factor @ 14% Present Value
1 48,000 0.877 42096
2 62,000 0.769 47678
3 85,000 0.675 57375
4 1,00,000 0.592 59200
5 1,10,000 0.519 57090
Present value of Cash Inflow 263439
Net Present Value = Present value of cash inflow – Initial Cash investment

= 263439 – 180000
= 83439
Project B –Shoes
Net cashflow £
Year Cash Flows PV Factor @ 14% Present Value
1 45,000 0.877 39465
2 65,000 0.769 49985
3 82,000 0.675 55350
4 98,000 0.592 58016
5 1,10,000 0.519 57090
Present value of Cash Inflow 259906
Net Present Value = Present value of cash inflow – Initial Cash investment
= 259906 – 170000
= 89906
Evaluate the result computed and how decision will be taken on the basis of the above calculatet
techniques.
As per the above calculations it can be seen that the company by using various
investment appraisal technique it can be analysed that the future profitability of the project is
calculated by using payback period and net present value of the company. By calculating these
methods company can determine which project should be selected in order to know which
project should be selected Project A is related with the bags and the project is related with shoes.
Net present value of project A is less than the Net present value of Project B. Higher NPV states
the actual amount which the company will earn after a specific period of time. According to the
pay back period method Project A should be selected as the time period taken by the project is
comparatively less as compared with the Project B (Rode and Fischbeck, 2018).
Determine the Non financial factors and financial factors
Financial Factors:s
 It helps in producing better quality product without wasting the resources of the
company.
 It helps in achieving goals in short period of time.

 It helps in controlling the cost associated with the project.
 It helps in analysing the financial performance of the business and improve the brand
image of the organisation (Ruza, de la Cuesta-González and Paredes-Gazquez, 2019).
Non-financial factors:
 it provides coordination between clients and suppliers.
 It helps in improving the performance of the business by taking proper measures.
 It helps in improving goodwill of the business by strengthening the management system
of the organisation.
 It further helps in managing the future uncertainties of the business (Strauch, Pidun and
zu Knyphausen-Aufseß, 2019).
CONCLUSION
From the above report it can be concluded that the investment appraisal technique plays
an important role in making decision making of the management. Payback period calculates the
time period taken by the initial investment of the project. Pay back period for the Project A is
2.82 years and for the Project B 2.73 years with the investment of 180000 and 170000
respectively. Net Present Value of the Project A is 83439 and Project B 89906. it can be
recommended that the Project which consists of shows should be selected because the return
provided in the Project B is more than the Project A. Further Financial and non financial factors
helps in taking decision based on the factors analysed.

REFERENCES
Books and Journals
MacGregor, B., Schulz, R. and Green, R.K. eds., 2018. Routledge companion to real estate
investment. London: Routledge.
Newing, A., Hood, N. and Sterland, I., 2020. Planning support systems for retail location
planning. In Handbook of Planning Support Science. Edward Elgar Publishing.
Rode, D.C. and Fischbeck, P.S., 2018. Reduced-form models for power market risk
analysis. Applied Energy, 228, pp.1640-1655.
Ruza, C., de la Cuesta-González, M. and Paredes-Gazquez, J., 2019. Banking system resilience:
an empirical appraisal. Journal of Economic Studies.
Strauch, M., Pidun, U. and zu Knyphausen-Aufseß, D., 2019. Process matters–How strategic
decision-making process characteristics impact capital allocation efficiency. Long
Range Planning, 52(2), pp.202-220.