Business Decision Making: Payback Period, Net Present Value, Financial and Non-Financial Elements on Investment Decision

This report evaluates two projects using payback period and net present value techniques, and examines financial and non-financial elements on investment decision. It also discusses the advantages and disadvantages of each technique and the impact of non-financial factors on investment decisions.

Business decision making

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
Main body........................................................................................................................................1
1.Computation of payback period of both the projects................................................................1
2.Examination of net present value of each projection................................................................2
3.Examining and computing both the techniques in projection A and projection B...................2
4.Financial and non-financial elements on investment decision.................................................3
REFERENCES................................................................................................................................5

INTRODUCTION
Business decision making is range procedure which permit proficient person to search the
solution with the help of weighing proof, collecting all the data and information and evaluating
the choices. These decisions also known as the decision of operational activity in the
organization (Hünermund, Kaminski and Schmitt, 2022). It is a written document that appraise
two projects by utilizing discounting and techniques of non-discounting such as payback period
and net present value. Although, it contemplates to choose one best method between two to
select out the one project either A or B. in the end, the report examines financial or non-financial
elements and their effects on conclusion of investment.
Main body
1.Computation of payback period of both the projects.
The time that has taken to recover the project's first investment is called payback period.
In other words, it grasps time for an asset to get as far as a breakeven point. It is measured by
dividing the total of money of investment by the cash flow of annual. This method is easy to
compute the value it means there is no found the any complexity and it aids to evaluate the
reliability and accuracy of the projection. To analysed this period, the formula is utilized:
Payback period =
when the annual cash flows are even then formula is used (averaging method) -
= Initial investment / yearly cash flows
= preceding year of cash flow + (cash inflow at the end of the year / cash flow of next year)
Payback period for project A
Years Cash flows
Cumulative Cash
flows
1 60000 60000
2 68000 128000
3 82000 210000
4 109000 319000
5 155000 474000
474000
= 2 + [(185000-128000)/82000]
= 2 years and 8 months
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Payback period for project B
Years Cash flows
Cumulative Cash
flows
1 65000 65000
2 69000 134000
3 77000 211000
4 105000 316000
5 145000 461000
461000
= 2 + [(182000-134000)/77000]
= 2 years and 7 months
2.Examination of net present value of each projection.
Net present value is an evaluation tool that is utilized for determining the decision to
make money invested in an asset of capital and deciding the feasibility of investment of
projection (Tingey-Holyoak and et.al., 2020). It has several advantages in order to decreased
cash flows to particular single numeric value that can be easily compared with the another
project's value of net present value (Zhu, 2020). To compute the value of net present, there is
formula that is used to calculate-
Method:
Net present value = (cash flows/ (1+ i)t – initial investment
Net present value of Project A
Year
Cash
inflows
Present value factor
@11%
Present value of cash
inflow
0 -185000 1 -185000
1 60000 0.9 54000
2 68000 0.81 55080
3 82000 0.73 59860
4 109000 0.66 71940
5 155000 0.59 91450
= Discounted cash inflows – Discounted cash outflows
= 332320-185000
= 147320
2

Net present value of Project B
Year
Cash
inflows
Present value factor
@11%
Present value of cash
inflow
0 -182000 1 -182000
1 65000 0.9 58500
2 69000 0.81 55890
3 77000 0.73 56210
4 105000 0.66 69300
5 145000 0.59 85550
= 325450-182000
= 143450
3.Examining and computing both the techniques in projection A and projection B
S&P is a company that produced bag and thinks about the venture which integrated
weather or not to deliver leather-based or material luggage. The NPV and PBP method of each
task helps to supervisor to make select the better option. These techniques can grade the property
and long-time price of venture. NPV is a technique of economic for the purpose of time value of
money that is brought into consideration as an approach of fashionable for doing comparison
with any venture. On the other side, PBP method is utilized to select out a venture that is going
to be purchased (Wang and et.al., 2020). It recognizing the time duration of years and months
that presents approximately particular term at the time of funding made. The NPV method get
ignored things in weighing desire of the tasks while other method PBP concentrates on period of
time that aimed to turn back on funding. Payback period method is best for the term that is relate
with the funding because it does not consider longer of any probabilities. With the help of
evaluating their advantages, PBP techniques is easy to determine short time funding and
elements that connect with tax and depreciation.
4.Financial and non-financial elements on investment decision
Investment assess is not all about the factors of economic. There are several non-financial
factors available that acts essential role in preparing any specific funding selection. These factors
perform as spine (Weygandt and et.al., 2018).
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There are number of the non-financial elements that impact on decision related to the investment:
 Weather changes: In today's scenario the green environment activities has received
esteem that agencies would not make investment in asset that retain the surroundings
visible with the assist of utilizing the local public who will become as clients later.
 Motivation of staff: The financial motivations are play an important role in work place
and includes the rewards that relate with the monetary value. There are many elements
that enhance the area of motivation of workers such as incentive and rewards on a
specific achievement or action of an individual worker (Yalcin, Kilic, and Delen, 2022).
 Government regulation: It refers to the maximum number of overlooked issue of assess
the funding. There is needed to contemplate in mind the regulations or authorities that are
applicable for the legal guidelines earlier than preparing asses funding.
An investment is a selection that has been done by individual own desire and a number of
the factors that can be reliable for all the selections that are follows. The main purpose of behind
any investment determine the allocation of fund long time as well as short period of time. It is
the beginning line of the technique of selection making (Burger, Kalverkamp and Pehlken,
2018).
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CONCLUSION
As per the above report, it has been concluded that the technique of capital measures the
practicability of the two projection that are contemplated through strategic manager of this
company. It has been calculated the value of both the projection A and B by using both
techniques. It also involves the evaluation of the best method or techniques between the NPV
and PBP for both of the projections. This written report also took the factors in terms of these
financial or non-financial investment decisions.
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REFERENCES
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regard to waste management. Journal of cleaner production, 205, pp.210-225.
Hünermund, P., Kaminski, J. and Schmitt, C., 2022. Causal machine learning and business
decision making. Available at SSRN 3867326.
Tingey-Holyoak, J., and et.al., 2020, February. Cost-informed water decision-making technology
for smarter farming. In International Conference on Intelligent Human Systems
Integration (pp. 404-408). Springer, Cham.
Wang, X., and et.al., 2020. Making the right business decision: Forecasting the binary NPD
strategy in Chinese automotive industry with machine learning methods. Technological
Forecasting and Social Change, 155, p.120032.’
Weygandt, J.J., and et.al., 2018. Managerial Accounting: Tools for Business Decision-making.
John Wiley & Sons.
Yalcin, A.S., Kilic, H.S. and Delen, D., 2022. The use of multi-criteria decision-making methods
in business analytics: A comprehensive literature review. Technological Forecasting and
Social Change, 174, p.121193.
Zhu, J., 2020. Suggested use? On evidence‐based decision‐making in industrial ecology and
beyond. Journal of Industrial Ecology, 24(5), pp.943-950.
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