Business Decision Making

Business Decision Making

Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Net present value.........................................................................................................................1
Pay back period............................................................................................................................2
Financial and non financial factors..............................................................................................4
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Business decision making is a procedure of managing business activities by taking
appropriate decisions for the operations of a business. This procedure involves selection of most
suitable alternative which can help business in achieving its goals (Burgass, Arlidge and
Addison, 2018). The main aim of this report is to build an understanding about the various
financial and non financial factors which impacts decision making. For this purpose, the case of
ABC Plc is selected in this essay which is a computer software company. In order to expand its
operations, this company is planning to investing in a new project. In this essay, two projects are
compared using techniques of NPV and Payback period along with description of other financial
and non financial factors.
MAIN BODY
Net present value
ABC Plc. is considering investing in a new project for this analysis using NPV is done. Net
present value is a financial metric which helps an organisation to ascertain present value of a
project by computing discounted factor value. This technique is a tool of ascertaining the future
profitability of a project and helps in evaluating whether the specific project is viable for the
company or not.
This technique has its own benefits and limitations which must be considered before
selecting it as a base of decision making. The major benefit of this technique is that it considers
time value of money by computing discounted factor value. Also, NPV is designed to factor the
risks which can be faced in a project. Limitations of this technique includes ignorance of sunk
cost and optimistic projections (Chen, Treviño and Humphrey, 2019).
For the present case, NPV for both the projects that are motor software and hardware
project is analysed below:
Formula: NPV = Cash flow / (1+i) t - initial investment
PROJECT A: Motor Software Project
Year Net cash flow PV factor @ 12% Discounted cash flow
1 8000 0.892857143 7142.857143
2 12000 0.797193878 9566.326531
3 16000 0.711780248 11388.48397
1