Business Decision Making

BUSINESS DECISION MAKING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Assessing the viability of project using investment appraisal techniques...................................3
Recommendation.........................................................................................................................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7
Table 1Project A: Motor Software Project NPV.............................................................................4
Table 2Project B – Hardware Project NPV.....................................................................................4
Table 3Project A: Motor Software Project payback period.............................................................5
Table 4Project B – Hardware Project payback period.....................................................................5

INTRODUCTION
In the context of business organization, effectual decision making is the key for the
attainment of predetermined goals and objectives. Now, several tools are available that can be
undertaken by the managers for evaluating opportunities and taking significant decisions. The
present report is based on the case scenario of ABC plc which in turn shed light on the
application of capital budgeting tools. It will entail project that company should choose for
getting the desired level of outcome or success.
Assessing the viability of project using investment appraisal techniques
Investment appraisal tools are highly significant which helps in assessing or evaluating
the attractiveness of project. These tools help in identifying that whether a project is viable or not
and on the basis of attractiveness of these projects, the portfolio decisions i.e. the decisions
regarding the investments are taken. The expected value of the investments in the future and their
profitability help in determining that whether a company should venture into such investments or
not (Kengatharan and Prashanth Diluxshan, 2017). There are various techniques such as payback
period, IRR method, NPV method etc. that can be adopted and the performance of the new
intended projects are appraised helping the company in selecting the most viable option.
Payback period: The payback method of investment appraisal helps in ascertaining the time
period in which the investor will be able to recover the amount that will be spent on the acquiring
of the investment (Mahmoud and Neale, 2016). The technique basically takes into consideration
the cash flows pertaining to the investment that are compared with the investment cost that was
initially incurred. Although this is an easy technique but it fails to take into consideration the
time value of the cash flows.
Net present value: NPV technique helps in ascertaining the estimated earning of the investment
and takes into consideration the time value factor thus making this an effective tool of
investment appraisal (Harris, 2017). When the NPV is positive it indicates that investment will
be profitable and when it is negative, it indicates that the investment will not be profitable. Thus,
only a positive NPV investment should be selected.
Computation of Net present value (NPV)