Business Decision Making: Analysis of Payback Period and Net Present Value

This paper analyzes the payback period and net present value of two projects using financial and non-financial measures. It also discusses the elements considered in investment decision-making.

Business Decision
Making

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
1. Calculation of the payback period of the dual projects..........................................................3
2. Analysis of the net present value of the projects.....................................................................4
3. Detailed analysis of the methods used in the projects A and B .............................................6
4. Elements considered in investment decision based on financial or non financial measures. 6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Businesses decision-making is the set of all the process which force the expert person to
identify the solutions by using the weighting testimony to accumulate the all data and ideas for
measuring the chances. In the company it is called the operational task and decisions. It is a
detailed paper which assess the two projects by the usage of the discounting or non discounting
methods like net present value and the pay back period (Galli, and Battiloro, 2019). In this
company has to do analytical thinking and select the ideal methods from the project A or B. It
take cares the monetary or non monetary variables to showcase their impact on the investment
MAIN BODY
1. Calculation of the payback period of the dual projects
It refers to the time period to retrieve the initial investment of the first project is known as
the pay back period. It defined the time frame of the investment to reach at the break even point.
The formula of measuring the pay back period is fraction the sum of total investment by the
annul cash flow. It is the easiest way to calculate the figure because it does not face any
difficulties. It denotes the relationship between the time value and money. It relays on the
discount rate (Jain, and Sharma, 2018). This method is best suitable to provide quality and
reliability in data. For computing this, this is the formula which is used:
Payback period =
Company has same annual cash flow then it is employed ( mean method) – First investment /
Yearly cash flow
= Cash flow of previous year + ( Finishing year of cash flow / Upcoming year cash flow)
Project A pay back period

2. Analysis of the net present value of the projects
Net present value is the measuring tool which is used for taking an important decision for
investing the funds in the capital assets to ascertain the feasibleness of the investment. It is
measured by minus the existing worth of cash inflow from the present amount of the cash
outflow (Li and Ahlstrom, 2020). It has many benefits to reduce the cash flow for the specific

numerical value which can be differentiated with the other net present value of the project. For
determine the net present value the formula is utilized to measure-
Method
Net present value = ( cash flows/ ( 1+i)t – First investment
Project A net present value

3. Detailed analysis of the methods used in the projects A and B
S&P company is famous for manufacturing the bag projects which is related with
weather to deliver the leather based luggage of the material or not. This tools NPV and PBP
guides the supervisor to choose the best alternative and take relevant decisions. Net present value
is a tool of economic analysis for calculating the value of money at present time. It helps to
compare the performance with any businesses undertaking. It aids to decide whether the
businesses should be purchased or not. It shows the duration of month and years for which
particular amount is funded (Ramkissoon, 2022). PBP method is the top-grade for getting the
money back after the fixed period. It does not think any occurring of chances. By analysing the
merits of this method, it is the best tool to measure the short term money and its variables that is
related with the tax and depreciation.
4. Elements considered in investment decision based on financial or non financial measures
The economic factors is not all about the analysing of investment. Company has to
regards the various non momentary variables for the criteria of selecting the funds. There are
several non monetary variables which has effect on investment related decisions.
 Changes in weather: The unpredictable alteration in the weather conditions has got
esteem that the agencies will not do investment in assets which holds the environment
visible by taking the help of local people which will later becomes the clients.
 Motivation of the staff: Company takes every attempt to provide financial or non
financial benefits to the employees. It helps to develop the morale of the employees.
Company should provide extra rewards, perks and benefits if the employee has
performed excellence in their work. This motivation assists them to sustain the targets
with full productivity ( Wang, Luan, and Dou, 2019).
 Government rules: It refers to the policies, norms, laws and the legislature which has to
be see for raising the fund and this rules are make by the government. The government
has imposed the strict guideline which is abide by every person to borrow the funds.
The investor contemplates the investment as an choice which is to choose by self with the
consideration of all the feasible factors which is to be followed. The primary objective of the
investment is to apportion the funds for long or short time duration. In long run it provides

maximum return on the investment and in the short run it gives small amount of return. It is the
initial technique for selecting the investment.
CONCLUSION
From the given report it is determined that the methods of capital measurement to
compute the projections of the two project in the practical way with the help of the strategic
manager of the organisation. The enterprise has calculated the figure of both the projects by
using the techniques. It also studies the measurement of suitable method between the choices of
the NPV and the PBP methods. It is the written documents which consider the financial or non
monetary investment factors for evaluating the performance of the organisation. Through this
computation it helps to understand which company is performing better.

REFERENCES
Books and Journals
Galli, B.J. and Battiloro, G., 2019. Economic decision-making and the impact of risk
management: how they relate to each other. International Journal of Service Science,
Management, Engineering, and Technology (IJSSMET), 10(3). pp.1-13.
Jain, S. and Sharma, S., 2018, August. Application of data warehouse in decision support and
business intelligence system. In 2018 Second International Conference on Green
Computing and Internet of Things (ICGCIoT) (pp. 231-234). IEEE.
Li, Y. and Ahlstrom, D., 2020. Risk-taking in entrepreneurial decision-making: A dynamic
model of venture decision. Asia Pacific Journal of Management, 37(3). pp.899-933.
Ramkissoon, H., 2022. Tourist Decision Making. In Encyclopedia of Tourism Management and
Marketing (pp. 500-503). Edward Elgar Publishing.
Wang, Y., Luan, Y. and Dou, Y., 2019, November. Research on Enterprises Group Decision-
making System from the Perspective of Knowledge Management. In 2019 6th
International Conference on Systems and Informatics (ICSAI) (pp. 1605-1609). IEEE.