Business Decision Making: NPV and Payback Period

Business decision making

INTRODUCTION
Business decision-making is a principle through a management system to make feasible and
sound decisions. This principle facilitates an organization in achieving its goals and being
profitable. The main objective of this report is to develop an understanding related with
the implementation of capital budgeting techniques like NPV and Payback period.
In order to better understand the importance of NPV and Payback period case study of XYZ
has been selected. The company is planning to make an investment into software or a laundrette
project.
Overview of case
XYZ Plc is indeed a budget chain restaurant which operates in the UK as well as European
countries. Presently, due to the absence of available sources a few other facilities are offloaded
by an organization such as laundrette and hospitality software system. Now XYZ Plc
management teams are thinking of investing in suitable software (£100,000) or laundrette project
(£120,000).
TASK
Net present value including its benefits and drawbacks
Net present value is really a methodology where all of a firm's total cash flows are reduced
in price to compensate opportunity cost to compute the profit an organization will receive from
the investing in a particular project (Weygandt and et.al., 2018). The advantages of the
methodology is that it still allows to take into account the risk risks the company might well
encounter in the real but it helps in analysing appropriate project activities' potential costs. As
any other financial measure, this methodology often has few drawbacks that involve technical
skill criteria and substantial time making it impossible for small-scale businesses to use the same
rate. It is used in financial improvement and considers moving to dissolve an
expected undertaking’s profitability. The same is being used in the following study by XYX Plc
administration for analysing the two ventures i.e. Project A- software installation and project B-
Laundrette.
Calculation of NPV
PROJECT A: Software project
Formula Calculation Result