Business Decision Making: Capital Budgeting Techniques and Investment Appraisal

Business Decision Making

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Calculation of the payback period...............................................................................................3
Computation of the NPV in project A and B...............................................................................4
Assessing financial and non-financial factors used to aid decision making................................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Business decision making may be defined as a process which lay emphasis on solving
problem by examining and evaluating all the possible alternatives. In the context of business
organization, manager uses several techniques with the motive to assess the extent to which
decision will prove to beneficial. The present report is based on the case scenario of AJ plc,
which manufactures chocolate, deals in UK and some parts of Europe. This report will develop
understanding about the concepts of capital budgeting and its use in investment decision making.
Further, it will highlight key financial and non-monetary factors which manager should consider
while taking decision about investment.
Calculation of the payback period
Payback period helps in assessing time which firm will take for reaching at break-even
point in the context of specific investment opportunity (Gorshkov and et.al., 2018). This method
is highly significant as it helps in measuring investment risk and evaluating liquidity aspect as
well.
On the basis of given case scenario business unit has two investment opportunity such as
vegan chocolates and spreads. In order to assess financial viability capital budgeting tools have
been used in the following way:
Year Project A – Vegan Chocolates
Net cash inflow £ Cumulative cash inflows (in £)
1 52,000 52,000
2 58,000 110,000
3 82,000 192,000
4 105,000 297,000
5 118,000 415,000
2 + (140000 – 110000) / 82000