Business Decision Making with NPV and Payback Period Methods

Essay on business decision
making

Contents
ESSAY TOPIC................................................................................................................................1
INTRODUCTION...........................................................................................................................1
ESSAY BODY................................................................................................................................1
Net present value with its benefits and drawbacks......................................................................1
Payback period with its benefits and drawbacks.........................................................................3
Financial and non-financial factors.............................................................................................4
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

ESSAY TOPIC
“An understanding of the decision making for the business with the help of NPV method
and payback period method along with various financial and non-financial factors”
INTRODUCTION
Business decision making is the process with the help of which viability of the business
options are analysed and accordingly decisions are taken. With the help of better decisions the
profitability can be improved and objectives of the organisation can be achieved (Weygandt,
2018). This easy develops an understanding of the financial and non financial factors that are to
be taken into consideration while decision making. Along with this the investment appraisal
techniques are discussed such as net present value and the payback period method.
ESSAY BODY
XYZ plc is a budget hotel chain that has been operating in UK and in some other part of
Europe. The hotel has outsourced some of their services such as laundrette and hotel software
system as they do not have sufficient funds for undertaking it on their own. But with the aim of
expanding business and reducing the cost the strategic managers of the hotels are planning to
invest in either of the service of the hotel outsourced (Spetzler, Winter and Meyer, 2016). But
before taking the final decision they need to analyse both the proposal and this will be done by
with the help of NPV method and payback method. For the project of the software the initial
investment that can be made by the hotel is £100,000 while for the project of Laundrette is
£120,000 with 11% rate of return.
Net present value with its benefits and drawbacks
Net present value is a technique with the help of which the present value cash inflow is
compared with the cash outflow over a period of time. This methods is used in capital budgeting
and planning of the investment for deeming the profitability of the project (Raghunath and Devi,
2018). The benefits of NPV method is with this the opportunity cost of the alternate project can
be identified. While the drawback of the project is it requires significant professional knowledge
and is appropriate for the large scale organisation.
The NPV for both the project of XYZ plc is given below:
1