University of Suffolk BABS Essay: Business Decision Making Analysis

This essay provides a comprehensive analysis of business decision-making, focusing on the application of tools such as the payback period and Net Present Value (NPV) in evaluating investment opportunities. Using the case of AJ plc, a chocolate manufacturing company considering investments in either vegan chocolates or vegan spread, the essay demonstrates how these tools, along with financial and non-financial factors, aid strategic managers in making informed decisions. The analysis includes detailed calculations of payback periods and NPV for both project alternatives, followed by a critical evaluation of the results. The essay also considers the influence of factors like social trends and market demand on decision-making. It concludes by highlighting the importance of efficient decision-making tools in business growth, emphasizing that the choice between projects ultimately depends on the specific criteria prioritized by AJ plc.

Essay on Business
Decision Making

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK ..............................................................................................................................................3
CONCLUSION ...............................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Decision-making is a process in which a series of steps are taken by an individual or a
business firm to achieve predetermined objectives. This process involves identifying the goal and
then taking different steps to achieve these goals. These goals are generally achieved by different
ways but in the decision-making, it is important to select the one alternative from the pool that
would give the most benefit and help the business achieve their objectives (Shah, Ahmad, and
Mahmood, 2018). This essay covers key aspects of the tools like the payback period, Net present
value and financial and non-financial factors that would help in decision making for the case
study provided.
TASK
In the case of AJ plc, a chocolate manufacturing company, the strategic managers of the
organisation wants to invest in a project manufacturing either Vegan Chocolates or Vegan
Spread. To take the decision in favour of a project, it is necessary to analyse and compare the
two projects using different tools that aid in decision-making (Li, 2021). This report will further
discuss these tools in detail and calculate the necessary factors required for decision-making.
Payback Period refers to the time in which the company will recover its initial cost of
investment in a project (Frost and Rooney, 2021). Every business is offered with different
projects that they can invest in and grow their business. Payback period aids the strategic
managers to compare and analyse what project to invest in as it shows in how much time they
will recover the costs. Calculation of payback period in response to the case study is as follows.
Year Annual cash
flow of A
Cumulative cash
flow of A
Annual cash
flow of B
Cumulative cash
flow of B
0 (Initial
Investment)
-140000 -140000 -120000 -120000
1 52000 -88000 46000 -74000
2 58000 -30000 60000 -14000
3 82000 52000 72000 58000
4 105000 157000 89000 147000

5 118000 275000 108000 255000
Payback Period = The period up to n-1 + cumulative cash flow in n-1 year / Cash inflow
during the nth year
n=year in which cumulative cash flow turned positive
Payback Period of Project A= 2 + 30000 / 82000
= 2 + 0.36
= 2.4 Years
Payback period if the company invests in project A is 2 years and 4 months.
Payback Period of Project B= 2 + 14000 / 72000
= 2 + (0.19*12 months)
=2 + 2.33
= 2 years and 2.33 months
Payback period if the company invests in project B is 2 years and 2.33 months.
Net Present Value (NPV) is the most important tool in decision-making. It helps the managers
decide what alternative from the investment options should the company choose that would give
them the most benefit (Gorshkov, Vatin, Rymkevich and Kydrevich, 2018). It measures the
profitability of a project. It is calculated by taking the difference between the present value of
cash inflows and outflows over a period of time.
NPV = {Cash flow / (1 + i)^t} – initial investment
where, i= discount rate
t=year of cash flow
Calculation of PV cash flow for project A
Cash flows of project PV factor Cash flow/PV factor
52000 0.'901 46852
58000 0.'812 47096
82000 0.'731 59942
105000 0.'659 69195
118000 0.'593 69974

TOTAL 293059
Calculation of PV cash flow for project B
Cash flows of project PV factor Cash flow/PV factor
46000 0.'901 41446
60000 0.'812 48720
72000 0.'731 52632
89000 0.'659 58651
108000 0.'593 64044
TOTAL 265493
Net Present Value of Project A= 293059 – 140000
= 153,059 pounds
The net present value of the investments in project A is 153,059 pounds.
Net Present Value of Project B= 265493 – 120000
= 145,493 pounds
The net present value of the investments in project B is 145,493 pounds.
Financial and Non-financial factors also influence the decision-making for an investment.
These can be any factors that may influence the regular working of the business (Fioriti and
et.al., 2020). These are discussed further. The business environment is one of these factor. Social
environment, trends in the purchasing of the buyers, political factors also influence these
decisions. Marketing research for the demand of products is also taken up to determine which
product is more demanded in the market (Jerome, Singh and Dwivedi, 2019). Financial factors
include the funds and monetary policies that allow a business to invest in the different projects
or not.
Analysis and Decision-making
After calculating the payback period and NPV of the both investment alternative, this part will
critically analyse the results of the calculations and decide whether the business should invest in
project A which was of Vegan chocolates or project B which was Vegan spread.
Decision-making with the help of payback period:

In the case of payback period, the lesser it is the better. Less payback period is considered
more profitable for the business. This is because, it is the time in which the business will earn
back from the investment, the invested funds/initial investment. By comparing the payback
period of the both alternative, Vegan spread project which is project B has lesser payback period
of 2.2.33 years. Project A has a slightly large payback period in comparison.
Project B is more viable with payback period of 2 years and 2.33 months.
Decision-making with the help of Net Present Value:
The net present value tool tells the managers about the current value of their investments
in response to future. The cash flows are analysed in this. The higher the NPV is, the more
desirable the project becomes. The above calculation of NPV of the two alternatives shows that
the project A also has higher NPV which makes project A, Vegan chocolates more desirable and
profitable for the business. Project B has slightly less NPV.
Project A is more viable with NPV amounting 153,059 pounds
Decision-making with the help of financial and non-financial factors:
The non-financial and financial factors that influence decision-making in the case of AJ
plc are, the social factors like the needs and wants of the consumers. The study of 2019 shows
that there have been a significant market growth in the demand of vegan chocolates due to the
changing preferences of the consumers.
Project A is more viable after analysing the above-mentioned factors.
CONCLUSION
From the above mentioned report, it has been concluded that the business decision-making is an
important factor in a business and its growth. The efficient use of tools for decision-making helps
the strategic managers perform better comparisons between the alternatives and choose the most
profitable investment. After the above essay, it solely depends on AJ plc for what base does it
want to take up to decide the future course of action. If it goes with payback period, project B is
more viable. If it goes with NPV method, project A is more viable. The essay also shows the
tools for budgeting decisions and the calculations of NPV and payback period.

REFERENCES
Books and Journals
Fioriti, D., and et.al., 2020. Economic multi-objective approach to design off-grid microgrids: A
support for business decision making. Renewable Energy. 159. pp.693-704..
Frost, G. and Rooney, J., 2021. Considerations of sustainability in capital budgeting decision-
making. Journal of Cleaner Production, p.127650.
Gorshkov, A.S., Vatin, N.I., Rymkevich, P.P. and Kydrevich, O.O., 2018. Payback period of
investments in energy saving. Magazine of Civil Engineering. (2).
Jerome, R.E., Singh, S.K. and Dwivedi, M., 2019. Process analytical technology for bakery
industry: A review. Journal of Food Process Engineering. 42(5). p.e13143.
Li, X., 2021. Decision making of optimal investment in information security for complementary
enterprises based on game theory. Technology Analysis & Strategic Management. 33(7).
pp.755-769.
Shah, S.Z.A., Ahmad, M. and Mahmood, F., 2018. Heuristic biases in investment decision-
making and perceived market efficiency: A survey at the Pakistan stock
exchange. Qualitative Research in Financial Markets.