Business Decision Making

This report discusses the importance of decision-making in business and focuses on investment appraisal techniques such as calculating the payback period and net present value. It also analyzes the advantages and disadvantages of NPV and payback period.

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................................................................................................................................................4
CONCLUSION...........................................................................................................................................6
REFERENCES............................................................................................................................................7

INTRODUCTION
Decision-making is an important part of democratic governance. Basically, the main
function of leaders is taking fair or reasonable decision-making. Each manager instinctively or
actively makes hundreds and thousands of taking decisions it the main element of a
management's position. Judgments play a significant role in deciding the both managerial and
administrative operations. A strategy can be defined as an action to take intentionally selected
from a variety of options to accredited businesses or organizational goals and targets (Jakhar,
2015). Decision-making is a constant and necessary part of the management of every company
or entity. Decisions are taken to manage both company operations and the organization's ongoing
tasks. This report mainly based on the XYZ Company that wants to invest into project. For this
require to prepare future plan for the new software. There are discussing about the investment
appraisal techniques that help to take right decision in regard of business.
MAIN BODY
1. Calculation of payback period
Year Project A Cumulative
cash flow
Project B Cumulativ
e cash flow
Year 0 £ 100,000 - £ 120,000 -
Year 1 £ 28,000 £ 28,000 £ 31,000 £ 31,000
Year 2 £ 32,000 £ 60,000 £ 38,000 £ 69,000
Year 3 £ 35,000 £ 95,000 £ 43,000 £ 112,000
Year 4 £ 55,000 £ 150,000 £ 64,000 £ 176,000
Year 5 £ 78,000 £ 228,000 £ 89,000 £ 265,000
Formula:
Payback period: Year before full recovery + unrecoverable cost / cash flow during the year
Project A = 3 + £ 5,000 / £ 55,000
= 3 + 0.90
= 3.90 year
Project B = 4 + £ 56,000 / £ 64,000

= 4 +0.87
= 4.87
2. Calculation of Net Present Value (NPV)
Year Software Project PV @ 11% DCF
Year 0 -£ 100,000 1 -£ 100,000
Year 1 £ 28,000 0.900901 £ 25,225.23
Year 2 £ 32,000 0.811622 £ 25,971.92
Year 3 £ 35,000 0.731191 £ 25,591.7
Year 4 £ 55,000 0.658731 £ 36,230.2
Year 5 £ 78,000 0.593451 £ 46,289.2
NPV £ 59,308.25
Year Laundrette
Project
PV @ 11% DCF
Year 0 -£ 120,000 1 -£ 120,000
Year 1 £ 31,000 0.900901 £ 27,927.93
Year 2 £ 38,000 0.811622 £ 30,841.65
Year 3 £ 43,000 0.731191 £ 31,441.23
Year 4 £ 64,000 0.658731 £ 42,158.78
Year 5 £ 89,000 0.593451 £ 52,817.17
NPV £ 65,186.76
3. Analysis
Advantages and Disadvantages of NPV and Pay Back period

Payback Period: The payback period in fundamental analysis is the qualifying criteria, or
sticking point, that so many business relies on to choose between prospective capital projects.
Small enterprises and big corporations respectively, tend to concentrate on ventures that are
likely to achieve quicker, more lucrative payback. Statisticians include cash flows from the
venture, original expenditure and other considerations for estimating the payback period of a
proposed investment.
Merit: Mostly as a marketing director, choosing between several potential ventures or
acquisitions can seem incredibly difficult. There can be challenges where ventures appear so
comparable in size and capacity that it would be tough to select despite a few strong statistics to
back up that assertion. The payback period ought to be able to present specifically which
expenditure would be based purely on ROI which will encourage the decision. If there's not
anything else to distinguish between the various tasks, a supervisor could use all the details and
support they can make a choice (Butler and Ghosh, 2015).
Demerit: This budgeting strategy is based solely on quick-term cash flow and having the
quickest gain achievable, so it ignores a lot of several other concerns. Paired with white time ,
the value of funds can fluctuate, particularly because once users talk concerning constant,
lengthy-term investments. A quarter that should be spending today didn't seem worth very much
like one spent twenty years ago. The discounted payback strategy excludes anything until the
company recoups the original cost.
Net present value: Net Present Value (NPV) is valued on the basis of an expenditure
development's projected expected cash flows. Another of the key methods of measuring an
investment is through NPV. Amongst the most used strategies is the discounted cash-value
method; hence, it is a familiar concept in the head of every successful corporate executive.
Merit: Cash flows are still unstable. Even if an organisation has a predictable trend of
inbound or outbound numbers, there is really no certainty that the activism of this funds will
proceed. The Net Present Value appears to work to compensate for this threat, so fund managers
can get a smoother understanding of what is expected during a project’s lifecycle. This strength
makes it very easy to see if a future operation will offer competitiveness. Considering what the
actual project cost is will also contribute to better policy actions cost of the knowledge that the
NPV provides.
Demerit: Not the only figures used in determining a Net Present Value are cash inflows
and outflows. But they're the major elements of the approximation; the expense of possible
chance should also be estimated. This figure is characterized as an expenditure which appears by
not embracing solutions which could have provides strong cash inflow. Many organizations will
not even attempt to measure those expenditures. If the substitutes are motivating to approximate,
then the NPV outcome might not have had the rate of precision or truthfulness wanted.

Financial and non financial factors: There are discussed financial as well as non financial
factors in broad manner such as:
Net income: Using a set of net revenue ratios to get a clearer look at the end result of a company.
The ratio of total revenue to net revenue, for example, can be used to evaluate if the operating
profit margin is in accordance with those of the comparable companies. Similarly, when
measured in combination with expected interest rate changes, overall residual value and
eventually find, the ratio of net profit to personal fortune will indicate that can receive a great
price.
Diversified human capital risk: When a corporation depends on a single client, manager, or
contractor, it could be similarly harmful. For context, whenever a particular customer contributes
more than half of a client's profits, the holder is far more of a government employee than a
supplier. Including, if a consumer continues using the service provider for whatever justification,
it causes a major hazard (Wei, 2017).
From the above computation it understands that Payback period is 4.87 for Laundrette
proposal and 3.90 for method statement. Project A is far more desirable than Project B for XYZ
Plc; performance is a measure of this procedure. Reduced healing process is advantageous for
the client because the client collects its ongoing costs in a limited time frame. Project A has a
59308.25 NPV, which are 65186.76 for Project B NPV. Project B is more ideal for XYZ Plc,
since it has stronger NPVs which are ideal for every company
CONCLUSION
As per the above report it has been concluded that to invest into any project require to an
enterprise focus on different activities that supports to business for long term sustainability. It is
require to focus on the each investment appraisal techniques that helps to calculate investment
returns from different techniques.

REFERENCES
Books and Journal
Ramadani, V., Zendeli, D., Gerguri-Rashiti, S. and Dana, L. P., 2018. Impact of geomarketing
and location determinants on business development and decision
making. Competitiveness Review: An International Business Journal.
Butler, S. A. and Ghosh, D., 2015. Individual differences in managerial accounting judgments
and decision making. The British Accounting Review. 47(1). pp.33-45.
Jakhar, S. K., 2015. Performance evaluation and a flow allocation decision model for a
sustainable supply chain of an apparel industry. Journal of Cleaner Production. 87.
pp.391-413.
Wei, G., 2017. Pythagorean fuzzy interaction aggregation operators and their application to
multiple attribute decision making. Journal of Intelligent & Fuzzy Systems. 33(4).
pp.2119-2132.