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

Essay on Business
Decision Making

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Introduction
Business decision making is considered as an important component of an organization. It
plays an important role in developing a financial management system that must be strong enough
to deal with the organizational financial activities. It is a process that includes various steps
which can be taken in order to achieve the objectives of the organizations in a highly efficient
manner. In context to this report, there are two different projects that have been provided for the
purpose of selection. For this purpose calculations have been made using the technique of
payback period and net present value so that a better output can be obtained to select the best
project. In addition to this, financial and non financial factors have been considered because
there contribution is considered as an essential part of the business decision making process.
Calculation of the payback period of two projects namely Project A – Vegan Chocolates and
Project B –Vegan Spreads.
Year Project A –
Vegan
Chocolates
Cumulative Cash
flow
Project B –Vegan
Spreads
Cumulative Cash
flow
1 52,000 52000 46,000 46000
2 58,000 110000 60,000 106000
3 82,000 192000 72,000 178000
4 105,000 297000 89,000 267000
5 118,000 415000 108,000 375000
The initial investment for the project project A (vegan chocolate) is stated at is £140,000.
The initial investment for the project project B (vegan spread) is stated at is £120,000.
Calculation:
Payback Period Formula: 3+ Cash flow of 3rd year/ Cash flow of 4th year
Project-A Project-B
3 + 110000 / 97000 3 + 106000 / 267000