Business Decision Making: Payback Period and Net Present Value

Business decision
Making

Table of Contents
Introduction-...............................................................................................................................................3
Calculation of Payback Period-....................................................................................................................3
Calculation of Net Present Value-................................................................................................................4
Financial and Non-financial Factors-............................................................................................................6
Financial Factors-.....................................................................................................................................6
Non-financial Factors-..............................................................................................................................7
Conclusion-..................................................................................................................................................7
REFERENCES............................................................................................................................................9

Introduction-
The focus of this report is on business decision-making. Making a decision is described
as selecting one choice from a set of alternatives (Ahmed, Qin and Aduamoah, 2018). Capital
budgeting approaches such as net present value and payback period can be used to make
financial decisions. These approaches provide information on a project's profitability. In order
for a company to expand, it must make decisions. DDK plc is a garment manufacturer. It
provides services in the United Kingdom as well as areas of Europe. The organisation has two
project choices to choose from, and it must determine which is the best. Capital budgeting
methods may be used to do this. Non-financial considerations such as goodwill, company
practises, and relationships with suppliers should also be considered.
Calculation of Payback Period-
Payback period of Project A
Years Cash Flow(in £)
Cumulative Cash
Flow
1 45,000 45,000
2 45,000 90,000
3 35,000 125,000
4 70,000 195,000
5 82,000 277,000
Payback Period 3.77 Years
Payback period of Project B
Years Cash Flow(in £)
Cumulative Cash
Flow
1 50,000 50,000
2 45,000 95,000
3 70,000 165,000
4 90,000 255,000
5 90,000 345,000
Payback Period 3.33 Years