Business Decision Making: Payback Period and NPV Comparison

This report compares the key aspects related to payback period, financial and non-financial factors for business decision-making. It includes the calculation of NPV and payback period for two projects and their interpretation. The report concludes that project A is the better investment option and will take 3 years and 7 months to recover the initial investment. The references include articles on artificial swarm intelligence, material requirements planning theory, and predictive value of interferon-γ release assays.

Business decision making

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
CONCLUSION................................................................................................................................3
REFERENCES................................................................................................................................1

INTRODUCTION
Business decision-making refers to step by step process that are help for allowing
professionals to solve different types of problems by weighing evidence then examining
alternatives with the help of choosing path from here. Also, this is define process that provide an
opportunity by helping for review and making decision accordingly. In the present report it is
help for comparing key aspects which are related to payback period, financial and non financial
factor which are help for decision-making (Diel, Loddenkemper and Nienhaus, 2019).
MAIN BODY
Calculation of NPV for project A
Year Cash inflows PV
factor
@ 11%
Discounted cash inflows
1 60000 0.901 54054.05
2 68,000 0.812 55190.33
3 82,000 0.712 58365.98
4 109,000 0.659 71801.68
5 155,000 0.593 91984.96
Total discounted cash inflow 331397
Initial investment 185000
NPV (Total discounted
cash inflows - initial
investment)
146397

Computation of Payback period

Year Cash inflows Cumulative cash inflows
1 60000 60000
2 68000 128000
3 82000 210000
4 109000 319000
5 155000 474000
Initial investment 185000
Payback period 3
-0.2
Payback period 3 year and 7 months
Calculation of NPV for project B
Year Cash inflows PV
factor @
11%
Discounted cash
inflows
1 65000 0.901 58558.56
2 69,000 0.812 56001.95
3 77,000 0.712 54807.08
4 105,000 0.659 69166.75
5 145,000 0.593 86050.44
Total discounted cash
inflow
324585
Initial investment 182000
NPV (Total discounted
cash inflows - initial
investment)
142585
Computation of Payback period
Year Cash inflows Cumulative cash inflows
1 65000 65000
2 69000 134000

3 77000 211000
4 105000 316000
5 145000 461000
Initial investment 182000
Payback period 3
-0.3
Payback period 3 year and 7 months
Interpretation- Net present value is refers to financial metrics that are help for capturing
total value by getting investment opportunity. The main reason for calculating net present value
is related to associating cash outflow and inflow on the basis of investment, discounts and future
cash flows for present day. It is related to getting resulting number after adding all positive and
negative cash flows together on the basis of investment of nets present value (Magni and
Marchioni, 2020). When positive NPV get after accounting for time value for money it is also
help for makings money with the help of investment. Also, it can be said that it is one of the
important methods that can be use by company which are help for providing better opportunity
for company in order to focus more on determining the project that is in loss or in profit. If the
company faces any loss it might say that it is necessary for possible solution which are help fort
providing success to organisation.
In context to present report it has been identified that project A will be select by company
with the reason of net present value of project A is higher than project B. with the help of this
estimation it help company to provide better investment opportunity as well as in refers to large
scale with large number of production. However, bidding strategy help company to increase
NPV in order to consider all potential disadvantages by following front loaded bidding strategy
that is substantial (Bogataj and Bogataj, 2019).
Pay back period is refers to calculation of number of years required for recover the
original cash investment and this time help for identifying the periods of times which project or
facility and others investment can produced sufficient net revenue for recover its investment
costs. This is necessary for calculating in order to focus more on how's long business recoup an
investment by analysing the firm and comparing value which are help for identifying the
opportunities and decide in project which return its investment the shortest time by which criteria

is necessary for company. However, front loaded bidding strategy is providing increasing value
of NPV project that can be considered as potential disadvantages. Then, it is important for
identifying the required values which are help for involving reliability as well as pros and cons of
project or machinery accordingly by estimating time value.
With the help of understanding data and metrics this is necessary for help company as
well as it can be determining profitability and growth of potential organisation. It can be said that
it is seen critical by internal and external stakeholder which can not give credit for non- financial
factor that can be impact big. Also, there are some of the financial factor which are affecting
business decision-making by understanding internal factors which influence decision-making
process as well as manufacturing company which face problem by understanding fixed
investment in terms of asset and capital structure which has large share for long term capital.
In addition to this, the ownership of pattern influence financial decision-making which
can be closely held company with one or more shareholders (Metcalf, Askay and Rosenberg,
2019). With the help identified the liquidity position of company it is necessary to find the non-
financial factor as well. This can be considered on the basis of standard followed by company so
that it help to improving the relationship with customers and other supplies. The structures of
capital and money market it can be influence by business decision-making that is not considered
as easy task of capital structure.
CONCLUSION
It has been concluded that there are different type of factor that influences business
decision-making process on the basis of investment. Also, for the choosing company selected
project is A which is help for expansion of company by investing more more money into this.
Also, it has been identified that there are 3year and 7 months will be taken for cover the initial
amount of company.

REFERENCES
Books and journals
Metcalf, L., Askay, D.A. and Rosenberg, L.B., 2019. Keeping humans in the loop: pooling
knowledge through artificial swarm intelligence to improve business decision
making. California Management Review, 61(4), pp.84-109.
Bogataj, D. and Bogataj, M., 2019. NPV approach to material requirements planning theory–a
50-year review of these research achievements. International Journal of Production
Research, 57(15-16), pp.5137-5153.
Magni, C.A. and Marchioni, A., 2020. Average rates of return, working capital, and NPV-
consistency in project appraisal: A sensitivity analysis approach. International Journal
of Production Economics, 229, p.107769.
Diel, R., Loddenkemper, R. and Nienhaus, A., 2019. Predictive value of interferon-γ release
assays and tuberculin skin testing for progression from latent TB infection to disease
state. Chest, 142(1), pp.63-75.