Business Decision Making

Business Decision Making

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
MAIN BODY.............................................................................................................................3
Evaluating viability of proposed investment using capital budgeting tools..........................3
Assessing financial and non-financial factors that aid in decision making...........................6
CONCLUSION..........................................................................................................................6
REFERENCES...........................................................................................................................7

INTRODUCTION
In the competitive business arena, manager is assigned with the responsibility to take
strategic and significant decisions so that organizational goals can be achieved. The present
report is based on the case of ABC plc. It manufactures & deals in computer software and
having operations mainly in UK and Europe. In this, report will provide deeper insight about
the manner through capital budgeting tools assist in taking investment decision about capital
projects.
MAIN BODY
Evaluating viability of proposed investment using capital budgeting tools
Given case scenario entails that ABC Plc wishes to explore operations with the
motive to enhance profitability. Thus, for gaining competitive advantage in the competitive
business arena ABC PLC is looking for making investment in new business. In this regard,
company has two options pertaining to investing money in either motor software or hardware
project. Thus, for the selection of suitable selection of investment project, capital budgeting
tools can be employed by the firm. As, it helps in identifying the extent to which proposed
project will aid in the company’s growth and profitability (Alkaraan, 2017). There are
several tools available which help company in identifying that viable in the long-run. It
includes net present value, payback period, average and internal rate of return.
For analyzing viability of two project NPV and payback period method has been used
by ABC Plc. NPV is the most effectual method which presents monetary return associated
with proposed investment by taking into account time value of money concept (Bader, Al-
Nawaiseh and Nawaiseh, 2018). Further, payback method highlights time period within
which amount invested at initial level can be recovered (Payback period method, 2019).
However, this method ignores time value of money concept and profitability that will be
earned after payback period.
Calculation of payback period and NPV: Project A (Motor Software)
Year
Cash inflow of
project A (in £)
PV factor @
12%
Discounted cash inflow
(in £)
1 8000 0.893 7143