Business decision making.

Business decision
making

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Explanation of financial funds require to fulfil operational needs and acquisition of ferry........1
Calculation of net present value of the project............................................................................1
Decision related to the investment...............................................................................................1
CONCLUSION................................................................................................................................1
REFRENCES...................................................................................................................................1

INTRODUCTION
Business decision making is a process of deciding alternative project to whatever
organization select or reject the business proposal. For this purpose managers uses capital
budgeting, it is also known as investment decision. Capital budgeting is a process of
identifying cost future value, profitability rate and requirement of capital to successfully
operate project within the organization. In order to understand the concept of decision
making Zylla limited has been taken, the company provides river crossing services for
people, goods and vehicles. In this report uses of capital budgeting tools for deciding
sources of funds, and technique for taking decision regarding whatever the company buy
new ferry for expend their business or not has been describe briefly.
TASK 1
Explanation of financial funds require to fulfil operational needs and acquisition of ferry
Capital budgeting: Investment decision related to long term assets are called capital
budgeting. It involves the planning, control of capital expenditure. In other words it is a
process of making decision regarding investment in fixed assets which is not meant for sale
such as land, building, and machinery. The acceptance and rejection of an investment
proposal should be based upon the maximization value of the company (Lehnert, Park and
Singh, 2015). It is influenced by availability of funds, future earnings, legal compulsion,
competitor’s project. For fulfil the needs of new ferry project following funds are required
through which manager can fulfil requirements of day to day activites as well as for long
term business uses:
Short term funds: It also known as working capital of the business, if Zylla limited
acquire new ferry then their needs for working capital has been increase. Short term funds
are required to purchase raw material, and meet operation activity expenses such as
payment of wages, salary, tax, repairing, and miscellaneous expenses incurred during
providing refreshment services to customers etc. To fulfil short period need company
collected sources from following funds:
Short term loan: These types of loan provided by banks to organization for less then one
period. Zylla limited use to take short term loans for this project.
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Bank deposited: Company can also use funds collected n their bank deposit they used it to
purchase or pay liability for their operation activites.
Account receivables: Manager provides facilities to their customers for pay their amount
within short period of time.
Trade credit: It is a floating time which allowed managers to pay for the goods and service
which they already received. It will help organization to manage their cash outflows and
increasing efficiency.
Factoring: In this technique organizational sells their account receivable to the third party
at lower vale in order to fulfil their cash requirement.
Business line of credit: It is one of the most useful way to fulfil working capital needs in
this tool, manager get permission from the bank to provides them fixed amount according
to their credit line it is easy method company can withdraw money and deposit as per their
requirement will help in saving cost of the company (Delen, Moscato and Toma, 2018).
Long term source of financing: These includes sources which used for acquisition of
fixed assets, purchase of land, building, these will help in providing long term benefit to
the organization. Manager of Zylla limited use following long term funds in order to
purchase new ferry:
Share capital: Capital of the company can divide into units, they can issue equity or
preferences shares both have their own benefit and drawback, in order to purchase ferry
and operate it for long term benefits company can issue shares.
Long term loan: Zylla limited can take loan from ban or other financial institution for
long time period at low interest rate, the time period of loan is more than 5 years.
Debenture: it is an instrument issued by company under common seal acknowledging a
debt and setting fir the terms under which they are issued and are to be paid it consider as
liability to the company but it uses for long term funds of finance.
Sell off assets: Manager of Zylla limited can sold their fixed assets in order to collect
source of money to purchase ferry for their future operation if it provides benefit to the
company.
By using above source company can collect short term and long term funds in order to
fulfil their operational activites of new project.
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Calculation of net present value of the project
Year Cash flow Discount factor Present value of
net cash flow
1 55230 0.971 53628.33
2 70045 0.943 66052.43
3 88375 0.915 80863.12
4 79870 0.888 70924.56
5 57555 0.863 49669.96
6 45000 0.863 38835
total 359973
Net present value: Cost of investment – Total value of present cash flow =
Net present value: 150000 - 359973 = 209973
Decision related to the investment
From the above calculation it has been identified that Zylla limited should accept their proposal
to acquire free for expend their business it will help in increasing their market growth and
provide profitability in future as the value of net present is compare high then cost of acquisition
of this ferry (Qin, Q., Liang, Li and Wei, 2017).
CONCLUSION
From the above analysis it has been concluded that in order to take effective decision
regarding long term future invest of business organization, managers should use capital
budgeting tools it will help in identifying resource uses for fulfilling short term and long
term requirement of the project and also useful for calculate total cost incurred during the
whole project. Managers use various capital budgeting technique, net present value, payback
period, in order to identify future cash inflow and out flow through which they can
recognize profitability rate of the project in future it will help in taking managerial decision
whatever to accept or reject the proposal as per the needs of the organization.
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REFRENCES
Lehnert, K., Park, Y. H. and Singh, N., 2015. Research note and review of the empirical ethical
decision-making literature: Boundary conditions and extensions. Journal of Business
Ethics, 129(1), pp.195-219.
Delen, D., Moscato, G. and Toma, I. L., 2018, January. The impact of real-time business
intelligence and advanced analytics on the behaviour of business decision makers.
In2018 International Conference on Information Management and Processing
(ICIMP) (pp. 49-53). IEEE.
Qin, Q., Liang, F., Li, L. and Wei, Y. M., 2017. Selection of energy performance contracting
business models: A behavioral decision-making approach. Renewable and Sustainable
Energy Reviews, 72, pp.422-433.
Reymen, I. M., Andries, P., Berends, H., Mauer, R., Stephan, U. and Van Burg, E., 2015.
Understanding dynamics of strategic decision making in venture creation: a process
study of effectuation and causation. Strategic entrepreneurship journal, 9(4), pp.351-
379.
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