Business Decision Making: Payback Period and Net Present Value Analysis for Akwaaba Plc

This report discusses the payback period and net present value analysis for Akwaaba Plc, a fashion industry dealing in shoes and bags. The report also covers factors affecting investment decision making. Project B is found to be more reliable with a higher net present value.

Business Decision
Making

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK...............................................................................................................................................3
Calculate Payback period of the two projects........................................................................3
Computation of Net Present Value of Akwaaba Plc..............................................................4
Interpretation..........................................................................................................................5
Factors affecting investment decision making.......................................................................6
CONCLUSION ...............................................................................................................................6
REFERENCES................................................................................................................................8

INTRODUCTION
Decision making is process which allows professionals to solve problems by proper
examine the alternatives, evidences and choosing a direction. It also review the decision made by
the management was whether right or not (Akgül and Seçkiner, 2019). In the following report,
Project decision are made by analysing the growth and profitability of the business concern.
Akwaaba Plc is established fashion industry and deals in shoes and bags but the company is
suffering from liquidity. So in order to select one project among the two prescribed projects, the
profitability and time period required is calculated to determine which project provides more
profit.
TASK
Calculate Payback period of the two projects.
In order to invest in a project the organisation needs to considers the inflows from the
project over the life of the project. There are various techniques which can be measure the
profitability of the project. This techniques includes Net Present Value and Payback period.
Payback Period Method: This method determine the time needed to recover the intitial
investment made in the project. The main objective of calculating the payback period is to
determine the time required to completely get the initial investment back. It will help the
organisation in selecting the project which will be helpful for the organisation (Hernes and et.al.,
2018).
Year Project A – Bags
Net cashflow £
Cash flow Cumulative cash flows
0 -180000 0
1 48,000 48000
2 62,000 110000
3 85,000
4 1,00,000
5 1,10,000

Payback period of project A = Years Before Break-Even + (Uncovered Amount / Cash
Flow in Recovery Year)
= 2 years + (70000 / 85000)
= 2 + 0.82
Pay back period Of Project A = 2.82 years
Year Project B –Shoes
Net cashflow £
Cash flow Cumulative cash flow
0 -170000 0
1 45,000 45000
2 65,000 110000
3 82,000
4 98,000
5 1,10,000
Payback period of project B = Years Before Break-Even + (Uncovered Amount / Cash
Flow in Recovery Year)
= 2 years + (60000 / 82000)
= 2 + 0.731
Payback period of project B = 2.73 years
Computation of Net Present Value of Akwaaba Plc
Net present value is the value of future inflows that are converted into present value
which can be ascertained over the period of time. It calculated by considering the discounting
factor to calculate the accurate amount determine the inflows of the project.
Project A – Bags
Net cash flow £
Year Cash Flows PV Factor @ 14% Present Value
1 48,000 0.877 42096

2 62,000 0.769 47678
3 85,000 0.675 57375
4 1,00,000 0.592 59200
5 1,10,000 0.519 57090
Present value of Cash Inflow 263439
Net Present Value = Present value of cash inflow – Initial Cash investment
= 263439 – 180000
Net Present Value of project A = 83439
Project B –Shoes
Net cash flow £
Year Cash Flows PV Factor @ 14% Present Value
1 45,000 0.877 39465
2 65,000 0.769 49985
3 82,000 0.675 55350
4 98,000 0.592 58016
5 1,10,000 0.519 57090
Present value of Cash Inflow 259906
Net Present Value = Present value of cash inflow – Initial Cash investment
= 259906 – 170000
Net Present Value of project B = 89906
Interpretation
According to the above calculated method it can be seen that investment appraisal technique
plays important role in analysing the returns that cab be derived from the projects. This technique
helps in deciding which project to be chosen from the available projects. Investment appraisal
technique makes it easy for the management to take decision on the projects. This method is
applied on both the projects such as project of shoes or project of bags. The initial investment on
the project of shoes is less as compared with the investment made on the project of bags but
project of shoes takes fewer time for pay back as compared with the project of bags. The net
present value of enterprise B is 6467 more than that of enterprise A, indicating that project b is
more reliable. A more prominent NPV indicates better execution. Based on the general

inspection, it indicated that the footwear project (Project B) was a satisfactory assignment in line
with Akwaaba plc's goals and objectives. The company stipulates that Task B is chosen because
it is more productive in the future compared to Project A (Luby and Orr, 2019).
Factors affecting investment decision making
Financial Factors:
Inflection rate:
Pronounced to imply the rate at which the cost of goods continues to increase, which will
diminish one's ability to exhaust or save. It may reduce the ability to generate income, which
may lead to insufficient assets and further reduce the development of the business.
Interest rates:
The expression is a rate that implies a continuous increase in the cost of a commodity,
which will diminish one's ability to deplete or save. It may reduce the ability to generate income,
which may lead to insufficient assets and further reduce the development of the business (Song,
Yang and Xia, 2019). Indicates an increase in loan fees affecting the momentary position of the
institution.
Non-financial factors:
Social impact:
Individuals are social creators in the economy, influencing the business choice process.
Basically, they also affect activities that oversee and spend cash on any mission. Akwaaba plc
utilizes strategies to examine the target market in terms of labour and products. Social mentality
and market encounters are social factors that influence business choices.
Opportunity cost
Opportunity costs provide conceivable benefits to individuals, financial backers, or
companies that pass up a major opportunity in a season of choosing one option over the other. It
helped Akwaaba plc realize its capital design. A company incurs a cost in giving both obligation
and value cash flow to take care of the risk opportunity for lessors and partners, but everyone
equally holds open costs (Wu, Zhou and Luo, 2018).
CONCLUSION
According to the above report, there is a tendency to believe that the risk assessment method
contributes to the dynamic cycle of the enterprise. By utilizing these strategies, Akwaaba plc

finds the most ideal speculation that aligns with the company's goals and development goals.
Compensation times for both speculations are compared, where taking on B is less risky and the
shoe task has more NPV than taking on the sack, for the results of these calculations it can be
inferred that project B is more important and produced for Akwaaba plc. will be used for the
company's capital construction. It dissects the factors that may influence a company's risk
choices that can help the company move in a better direction.

REFERENCES
Books and Journals
Akgül, A. and Seçkiner, S.U., 2019. Optimization of biomass to bioenergy supply chain with tri-
generation and district heating and cooling network systems. Computers & Industrial
Engineering, 137, p.106017.
Hernes, M., and et.al., 2018, September. Agents’ Knowledge Conflicts’ Resolving in Cognitive
Integrated Management Information System–Case of Budgeting Module.
In International Conference on Computational Collective Intelligence (pp. 297-308).
Springer, Cham.
Luby, M.J. and Orr, P., 2019. From NIC to TIC to RAY: Estimating Lifetime Cost of Capital for
Municipal Borrowers. Municipal Finance Journal, 39(4).
Song, S., Yang, F. and Xia, Q., 2019. Multi-criteria project portfolio selection and scheduling
problem based on acceptability analysis. Computers & Industrial Engineering, 135,
pp.793-799.
Wu, H., Zhou, Y. and Luo, Q., 2018. Hybrid symbiotic organisms search algorithm for solving
0-1 knapsack problem. International Journal of Bio-Inspired Computation, 12(1),
pp.23-53.