This article discusses the financial decision-making process of AJ plc, a chocolate manufacturing company in the UK. It covers the analysis of stakeholders using payback period and NPV, comparing and contrasting the two methods, and the implications of financial and non-financial factors on decision-making.
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BUSINESS DECISION MAKING
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Table of Contents INTRODUCTION..........................................................................................................................3 TASK...............................................................................................................................................3 Calculation of payback period....................................................................................................3 Calculation of NPV.....................................................................................................................4 ANALYSIS......................................................................................................................................5 a) Comparing and contrasting the payback period and the NPV................................................5 b) Using financial and non-financial factors and their implication on stakeholders and decision making process............................................................................................................................6 CONCLUSION...............................................................................................................................6 REFERENCES................................................................................................................................7
INTRODUCTION Financial decision making is the consideration which is being made by the firms with the effective analysis of monetary and non-monetary and also seeing the overall financial position of the venture. These aspects helps the business to take the major consideration in enhancing the overall financial position of the business venture(Denney and Merritt, 2020). AJ plc is the chosen business and the stakeholder will predict the factors in order to invest in the venture. It is the chocolate manufacturing company that is operating their business in UK. This respective essay will cover the analysis of stakeholder as they will us two tools such s payback period and NPV. Then they compare the two project in order to task appropriate decisions whether to invest or not and also choosing the appropriate method of investing. TASK As per this given assessment, AJ plc has shown their cash flow statement that is necessary in order to accomplishing of the given project. Vegan chocolate is the project A and its initial investment is£140,000 and I vegan spread is the project B which is £120,000. the given discount rate is 10% and net outflow is presented in the table. YearProject A – Vegan chocolates Net cash flow £ Project B –Vegan spread Net cash flow £ 15200046000 25800060000 38200072000 410500089000 5118000108000 Calculation of payback period Is is the method or the technique of capital budgeting in which the stakeholder in order to get the time which is needed to recover the investment amount initially in the project. In this context, they also analyse the years needed for accomplishing or recovering their invested amount. Further, the comparison is being done in the projects by which they can take the better decisions and choose the appropriate project. SOLUTION: Net cash flowCumulativeNet cash flowCumulative
for project A£Cash flow (A)for project B£Cash flow (B) 152000520004600046000 25800011000060000106000 38200019200072000178000 410500029700089000267000 5118000415000108000375000 Project A `The initial investment for project A is of£1,40,000 to recover this amount either it will take 2 year or 3 year. Pay back period: Year before break even + ( Uncovered amount/ cash flow in recovery year) Uncovered amount= 140000 -110000 = 30000 cash flow recovered = 192000-110000= 82000 pay back period= 2+(30000/82000) = 2 + 0.365 = 2.365 years Project B The initial investment for project B is of£120,000 to recover this amount either it will take 2 year or 3 year. Pay back period: Year before break even + ( Uncovered amount/ cash flow in recovery year) Uncovered amount= 120000 -106000 = 14000 cash flow recovered = 106000-178000= 72000 Pay back period= 2+(14000/72000) = 2 + 0.194 = 2.194 years Calculation of NPV Net present value is the prescribed method by which an organisation get the present vale and then they compared with the initialinvestment made by the firm. This is the method in
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which the company is analysing the overall profitability in the given project(Pandulis and Garvanov, 2020).In this method, there is difference in the present value of cash outflow and inflow. It is vital t analyse the discount rate to calculate the NPV of the given firms. SOLUTION: Net cash flow for project A£ Discount rate @11% NPV amountNet cash flow for project B £ NPV amount 1520000.9468004600041400 2580000.81469806000048600 3820000.73598607200052560 41050000.66693008900058740 51180000.596962010800063720 TOTAL292560265020 NPV= Present value cash inflow- Present value cash outflow For project A: NPV= 292560- 140000 =£152560 For project B: NPV= 265020 – 120000 =£145020 ANALYSIS a) Comparing and contrasting the payback period and the NPV. As from the above solution, stakeholder can rightly make the analysis about the project in which they must invest. Net present value or payback period is the similar concepts which can be calculated with the helps of knowing initial investment and how it will be recovered. From calculating the payback period, it is clear that the stakeholder easily make their investment in project B and this will take2.194 years to recover them and in comparison A as the project is having 2.365 years as payback period.
b) Using financial and non-financial factors and their implication on stakeholders and decision making process. There are certain aspects that are financial or non-financial factors and having major significant affects in the decisions making of the investors and its implication. Financial factorare the aspects which analyse the major consideration to which the company is having full control and direct relation with the cash flow and the outflow of the venture. While making the investing decisions, they must look to the financial factors and includes the certain amount of wealth. They also look to the debts paying abilities in order to analyse the market reputations in terms of paying interest. Non financial factors CONCLUSION From the above scenario, it is concluded that business decisions is having the main consideration by which they can understand the management in order to generate higher profits. There are certain aspects which is used by the firms in decide the certain investment areas or the particular projects. By selecting such aspects, business can rightly make appropriate decisions in order to have higher success.
REFERENCES Books and Journals Denney, V.P. and Merritt, D.M., 2020. Improving Ethical Decision Making through the Lens of Graduate Project Management Students.The Journal of Modern Project Management, 8(2). Drapeau, M.J. and Tremblay, M., 2020. Revisiting the Entrepreneurial Exit Decision Process: A Decision-Making Model. InBusiness Transfers, Family Firms and Entrepreneurship (pp. 22-36). Routledge. Hauser,A.,Eggers,F.andGüldenberg,S.,2020.Strategicdecision-makinginSMEs: effectuation, causation, and the absence of strategy.Small Business Economics,54(3), pp.775-790. Iram, T., Bilal, A.R. and Latif, S., 2021. Is Awareness That Powerful? Women’s Financial Literacy Support to Prospects Behaviour in Prudent Decision-making.Global Business Review, p.0972150921996185. Pandulis, A. and Garvanov, I., 2020. Decision Support Framework for Composing of Different Questionnaires Based on Business Model with Optimization. InIntegrated Uncertainty in Knowledge Modelling and Decision Making: 8th International Symposium, IUKM 2020, Phuket, Thailand, November 11-13, 2020, Proceedings(Vol. 12482, p. 50). Springer Nature. Tingey-Holyoak, J.L., Pisaniello, J., Buss, P. and Wiersma, B., 2020. Water productivity accounting in Australian agriculture: The need for cost-informed decision-making. Outlook on Agriculture,49(2), pp.172-184.