Business Decision Making: NPV and Payback Period Approach for DD Plc

This essay discusses the computation of payback period and net present value for DD Plc, along with financial and non-monetary factors influencing business decision making. It includes a detailed explanation of the payback period and NPV approach, and how they can be used to make informed decisions. The essay also highlights the importance of factors such as cost, profitability, compliance programs, and changing client trends in business decision making.

Essay on Business
Decision Making

Contents
INTRODUCTION...........................................................................................................................................3
MAIN BODY.................................................................................................................................................3
1. Computation of pay-back period of DD plc..........................................................................................3
2. Calculating net present value..............................................................................................................4
Explaining financial & non-monetary factors...........................................................................................5
CONCLUSION...............................................................................................................................................6
REFERENCES................................................................................................................................................7

INTRODUCTION
Business decision making is focused with making important evaluations of both monetary
and non-financial aspects in order to attain greater conformity to aims. In today's world, it is
critical for businesses to execute better corporate judgement in order to have the right capability
to resolve competitors (Dormady, Greenbaum and Young, 2021). The present research is
centered on DD Plc, a vegetarian food production firm that operates in the United Kingdom and
portions of Europe. The current report will include the determination of NPV and the payback
period approach of capital evaluation in order to make an informed conclusion. This will include
information about financial and non-monetary factors influencing company decisions.
MAIN BODY
1. Computation of pay-back period of DD plc.
Payback period: A payback period is the time needed for a corporation to make enough money
to cover its initial expenditure. That may sound difficult, but in basic words, it is the amount of
time it would have taken to be double their funds to help on the earnings generated by a firm.
Payback is a common financial appraisal approach since it is simple to grasp and compute,
irrespective of what it truly represents (Beyers and Arras, 2021).
Project A (smoothies) Project B (non diary )
Year Cash flow Cumulative cash
flows
Cash flow Cumulative cash flow
0 -158000 -158000 -155000 -155000
1 72000 86000 71,000 -84000
2 78000 -8000 73,000 -11000
3 82000 74000 97,000 86000
4 110000 184000 118,000 32000
5 125000 309000 121,000 153000

Payback period (project A) = 2 year + 8000 / 82000
= 2 year + 0.097
= 2.09 years.
Payback period (project B) = 2 years + (155000 - 144000) / 97000
= 2 Years + 11000 / 97000
= 2.11 years
Project A has a payback duration of 2.09 years, whereas Project B has a payback period of 2.11
years, so according DD plc's figures. As a reason, it is possible to claim that project A obtains its
capital appreciation sooner than project B. As a consequence, project A is more profitable for the
business.
2. Calculating net present value
Net present value: The net present value (NPV) is a method of assessing cash flow that takes
into account the time worth of income and the volatility of an enterprise. After controlling for
risk, NPV reduces value can be calculated at their operating cost to the present. Fundamentally,
it's a method of calculating their rate of return by evaluating what money might earn in real value
to what money could generate in the future. Money is definitely worth fluctuates over time as a
result of a present value, which might be income, inflationary, or the projected rate of potential
profit.
Project A (Smoothies) Project B (Non dairy)
Year Cash flow Discount factor
@15%
Present
value
Cash flow Discount
factor @15%
Present value
1 72000 0.87 62568 71,000 0.87 61699
2 78000 0.756 58968 73,000 0.76 55188
3 82000 0.66 53874 97,000 0.66 63729

4 110000 0.57 62810 118,000 0.57 67378
5 125000 0.5 62125 121,000 0.5 60137
300345 308131
Project A = Net present value of cash inflow – Net present value of cash outflow
= 300345 – 158000
= 142345
Project B = Net present value of cash inflow – Net present value of cash outflow
= 308131 – 155000
= 153131
The net present value of Project A is 142345, whereas the npv method of Project B is 153131.
Project B has a higher net present value (NPV) than Project A. As a result, of the two jobs
described above, project B will be picked.
Explaining financial & non-monetary factors
Expense, property structuring, projected return, hazard, and profit margins are some of the
financial indicators that have an influence. It is critical for the business to place a high priority on
its manufacturing cost, which includes both directly and indirectly expenditures. It is a
significant component that requires greater emphasis in order to achieve a desired competitive
advantage. Lowering costs might result in a better profitability since it influences the actions of
investors. A variety of parties are focused on profitability margins in order to make decisions
about project finance, etc. It is critical for the organisation to focus on lowering costs in order to
increase revenue by maximizing resource use, which will lead to improved end. Shifting
interests, currency, and other rates have a significant impact on the cost of investment and affect
corporate spending. Those factors were considered by the firm when seeking financing (Ali,
2021).

There are other non-monetary aspects that have an influence on the firm's management,
both positively and negatively. Non-financial considerations include things like accessibility,
workplace environment, strategy design, risk mitigation, and so on. It is clear those are both
internally and externally variables. Political, social, economic, technical, economic, and legal
factors are examples of extrinsic elements. Insufficient technology reduces productivity which
can have a negative influence on a bigger scale (Mehta, Bhattacharyya and Pandey, 2022). The
changing client trend makes it harder for the organisation to concentrate on creating adjustments
in its internal processes, which also affects money usage. Legal compliance is critical for
maintaining effective industry sustainability, since non-compliance can lead to the emergence of
difficulties. It is critical to analyse all laws and regulations issued in order to remove extraneous
elements and maintain a sustainable. Appointment of human resources in accepting
environmental changes has a vital role in influencing company decisions about the adoption of
new technology, the implementation of policy proposals, and so on, leading to increased
competition. Rapid changes in consumer demand are one of the key factors that must be
considered when determining whether or not the selected investment evaluation strategy is aimed
at fulfilling market needs (Govindan and et.al, 2021).
Based on the facts supplied on both monetary and non-financial aspects, it can be claimed
that every component has an influence on the efficient operation of the firm. It is critical for the
company to concentrate on every component in order to boost productivity by finding and
removing gaps in order to achieve the goal of adopting a certain choice.
CONCLUSION
According to the aforementioned analysis, it is critical for the firm to make strategic
decisions in order to improve competition. In order to provide more in-depth views, the latest
report includes a computation of net present value and payback duration. The current study
included information about financial and non-monetary factors that influence company
decisions, such as profitability, cost, shifting client trends, compliance programs, human
resources, and so on.

REFERENCES
Books and Journal
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decision-making in repeated disaster environments. Natural Hazards Review. 22(1).
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Beyers, J. and Arras, S., 2021. Stakeholder consultations and the legitimacy of regulatory
decision‐making: A survey experiment in Belgium. Regulation & Governance. 15(3).
pp.877-893.
Ali, B. J., 2021. Assessing (The impact) of advertisement on customer decision making:
Evidence from an educational institution. Ali, BJ (2021). Assessing (The impact) of
advertisement on customer decision making: Evidence from an educational institution.
Afak for Science Journal. 6(01). pp.267-280.
Govindan, K. and et.al, 2021. Structural model for analysis of key performance indicators for
sustainable manufacturer–supplier collaboration: A grey‐decision‐making trial and
evaluation laboratory‐based approach. Business Strategy and the Environment. 30(4).
pp.1702-1722.
Mehta, N. K., Bhattacharyya, S. S. and Pandey, N., 2022. Empirical investigation regarding
ethical decision making: a stakeholder cross-impact analysis (SCIA). International
Journal of Ethics and Systems.