Business Decision making

This report explores the process of business decision making and its significance. It focuses on a case study of XYZ plc in the hospitality sector, analyzing their decision to invest in software and Laundrette service or outsource these services. The report discusses the calculation of payback period, net present value, and the influence of financial and non-financial factors on decision making.

Business Decision making
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Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Calculation of payback period.....................................................................................................3
Working out of Net Present Value...............................................................................................4
Financial factors...........................................................................................................................5
Non financial factors....................................................................................................................5
CONCLUSION................................................................................................................................6
REFRENCES...................................................................................................................................6
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INTRODUCTION
Business decision making can be refers as most essential part of business management process.
Capabilities of manger determine hw effectively they take decision for their business. These
reports take case study of XYZ plc which is situated in United Kingdom and run their business in
hospitality sector. The organization has 2 option whatever to invest in the software and
Laundrette service or outsoaring these series. This report is defined how manger take decision by
using capital budgeting technique and factor they directly and indirectly affect the decision
making cretin of business organization.
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TASK 1
Calculation of payback period
Payback period can be defined as the technique of capital budgeting through which mangers
identify the recovery time project activities take to fulfil their initial cost. Or to achieve the
breakeven point. Higher pay back time period represents the slower growth rate of the business
project. This method of capital budgeting useful for easily calculate and take decision for making
enterprise (Hicks and 2015).
Payback period for Project A (Software Project)
Year Cash inflow in £ Cumulative cash inflow
1 28,000 28000
2 32,000 60000
3 35000 95000
4 55000 150000
5 78000 228000
Formula of payback period= Base year +Initial investment- Cumulative cash inflow of base
year / Upcoming year cash inflow
3+100000-95000/55000= 3.90
Payback period for project B (Laundrette Project)
Year Cash inflow in £ Cumulative cash inflow
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1 31000 31000
2 38000 69000
3 43000 112000
4 64000 176000
5 89000 265000
PAYBACK PERIOD: 3+120000-112000/64000 = 3.125Interpretation: Manager take their
decision in favour of accepting the project if the payback period of project take lesser time. In the
case of XYZ plc the payback period of project A is 3.90 years and Laundrette project period is
#.12 years both take lesser time and easily cover up cost . Thus manger of the XYZ should take
the decision of investing in these project ad sop outsource of service of these project.
Working out of Net Present Value
Net presents value can be refer as the sum of difference of initial cost and the current value of
cash inflows. It is the consistent method of capital budgeting apply by business organization to
catch helpful and accurate judgment as regards their future (Bett and Ayieko, 2017).
For software project
Year Value of cash inflow Discount rate factor
11 %
Present value of net
cash flow
1 28,000 0.901 25228
2 32,000 0.812 25984
3 35000 0.731 25585
4 55000 0.659 36245
5 78000 0.593 46254
Total 159296
Net present value: Present value of cash inflow of software project – Present value of initial
investment cost of software: 159296-100000: 59296
For Laundrette project
Year Value of cash inflow Discount rate factor
11 %
Present value of net
cash flow
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1 31000 0.901 27931
2 38000 0.812 30856
3 43000 0.731 31433
4 64000 0.659 42176
5 89000 0.593 47971
Total 180367
Net present value: Present value of cash inflow – present value of initial investment of
Laundrette project: 180367-120000: 60367
Interpretation: from the computation of net present value it has been identified that xyz plc
will to accept both the projects as the net present value of software ad laundrette project is
higher then its initial cost.
Financial factors
Factors related with monetary transactions and activities are considers as financial factors. These
factors are affecting the cash flow of business organization. Manager of XYZ plc considered all
its monetary factors before taking any kind of decision.
Share capital: It can be defend as the value of shares through which organization able to build
its authorised capital. Shareholders are known as owners of the organization. It considered
financial factor because share capital Are the real source of collection of finance within the
business organization (Cavalcante and at.el.2016).
Bank balance: The balance of liquid assets business organizations have in their accounts
considered as bank balance. The manager does not consider their decision in factor others
alternative which required higher amount of bank balance because they need to fulfil their data to
day transactions also.
Profit: Revenue generate by business organizations through their business activities considered
as profit. Higher profit of business activities show longer sustainability and a good image of
business within the market place.
Non financial factors
Those elements of business organization which are necessary for run business activities and not
related with the Monterey resource are known as non financial factors. Manager tske
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consideration of these factors as they are responsible for qualities and service of the products and
customers relationship and long term sustainability depends on them.
Human resource: These consider as the most important resource of business organization .
Skills workforce able to cover any threat into opportunities and accept he new working project
and its case change of increasing their skills. On the other side if workforce are not motivate
organization will not able to achieve their goals and complete their target (Yau, 2015).
Legal consideration: It is necessary for the manger of business XYZ plc to before taking
decision considered all the ethical rules, liabilities through which they are able to not break any
rule of law.
Technologies: new technologies also affect the decision making process as mangers need to
understand an introduce technologies before take consideration ethic their workfare. Lack of
technology also a cause of failure of project.
CONCLUSION
Business decision making is vital part for every industry of the economy. This process help in
achieving desired business goal. For effective decision making process managers use various
techniques of capital budgeting which if one of the famous modal of financial management.
Managers of business entity also considers the skills of their workforce, availability of monetary
resources, legal rules and procedures before selecting an alternative as success of project
alternative depends on these factors.
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REFRENCES
Books and journal
Hicks, A. L., Gilbertson, L. M., Yamani, J. S., Theis, T .L. and Zimmerman, J. B., 2015. Life
cycle payback estimates of nanosilver enabled textiles under different silver loading,
release, and laundering scenarios informed by literature review. Environmental science &
technology, 49(13), pp.7529-7542.
Bett, E .K. and Ayieko, D .M., 2017. Economic potential for conversion to organic farming: a net
present value analysis in the East Mau Catchment, Nakuru, Kenya. Environment,
Development and Sustainability, 19(4), pp.1307-1325.
Cavalcante, R. C., Brasileiro, R. C., Souza, V. ., Nobrega, J. P. and Oliveira, A .L., 2016.
Computational intelligence and financial markets: A survey and future directions. Expert
Systems with Applications, 55, pp.194-211.
Yau, O. H., 2015. Consumer Rights: The Perception of Business Managers in Hong Kong.
In Proceedings of the 1987 Academy of Marketing Science (AMS) Annual
Conference (pp. 146-150). Springer, Cham.
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