Business Decision Making

This report explores the concept of business decision making and the use of capital budgeting techniques. It discusses the calculation of payback period and net present value, as well as the financial and non-financial factors that influence decision making. The report emphasizes the importance of effective decision making for long-term success in the market.

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....................................................................................................................6
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INTRODUCTION
Business decision making, this term can be refer as the procedure used by manager for select the
best alternatives through which they are able to generate more profits and maintain positioning
market. To understand this concept XYZ has been taken this firm is a part of hotel chain of
United Kingdom. This report defines the uses of capital budgeting techniques for analysing the
future flow and time required to cover up the cost. This report also defined factors which are
essential for manager before taking any decision regarding their business.
TASK 1
Calculation of payback period
Payback period: The technique which is used by small firm for identifying the time period they
require to cover up the cost value of initial investment, is known s payback period. Payback
period is a time period through which manager can easily analyse and compare all the
alternatives time they require to recover project cost. On the basis of analysis manager select
alternative which take minimal time to cover up the cost. This technique is used because of their
easy calculating and interpretation (Jiang, Ho, Yan and Tan, 2018).
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
1 31000 31000
2 38000 69000
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3 43000 112000
4 64000 176000
5 89000 265000
PAYBACK PERIOD: 3+120000-112000/64000 = 3.125
Interpretation: payback period is 3.90 years for software project and 3.125 for laundrette project.
Which means that both project take time less then 3 years to cover up their initial investing cost.
As their cash inflows values s higher .Thus it will be treated as beneficial offer for the XYZ plc
to invest in the project according to payback period method.
Working out of Net Present Value
Net present value: This worth can be distinct as the net worth of future cash flow after deduct
them from early cost of project. It is using as on the whole accurate and fitting method of capital
budgeting due to considering of time money in its calculations. Manager of selling entities use
this technique when they take decision regarding accepting or refutation of a pitch. This
technique of principal budgeting used to find out the rate of proceeds in future
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
1 31000 0.901 27931
2 38000 0.812 30856
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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: Value of the software project is 59296 and net present value that means the
difference of actual present outflow and initial cost of project laundrette is 60367 which are
positive value as the present cash outflow value is greater as compare to their initial
investment. Manager of XYZ plc will be take decision of accepting of investing in both
project because they provide higher future cash inflows and beneficial business organizing
in future.
Financial factors
Financial factors of company organization considered persons factors which effect the business
judgment making process directly. Manager of XYZ receive decision after analyse the
location and ease of use of theses thing within their group (Mo and Deng, 2016).
subsequent are the facial factors:
Net profit: It be able to be defined as the amount up value of proceeds after deduct all the
expenditure of business. Higher the worth of net profit of group higher the probability of
achievement of business in prospect. Manager takes decision n the foundation of formative
profitably rate of projects in future.
Income: The foundation of monetary income by running business operation. Manager take
decision of invest if they are able to take home from the development higher potential
income. And they have cause of capital to invest inside the project.
Cost of goods: This also concern the decision making , higher cost incur on built-up of goods
condense the gross earn of business
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Non financial factors
These factors are those elements which indirect affect the decision making process of
organization. Non financial factors does not considered any financial term. Following are
the non financial factors of XYZ plc
Work force: Manager of XYZ plc take decision only after considers in skill and capabilities.
XYZ possibly will not put in in those project which essential privileged skills and
methodological knowledge workforce. Success of the corporation depends on how outcome
workers accomplish their liability.
Technology: The organism, equipments and machinery use by corporation to offer supplies and
check is as well consequence presentation of organization (Al-Amar, Al-Bayati and Al-Haiyali,
2019).
Ethical values: It is very important for manager to choose persons another and which they bright
to perform all the officially authorized liability and which are in support with their company
CONCLUSION
From the overall analysis it has been identified that in order to make a long term position in
market, business organizations need to take effective decision by using methods of capital
budgeting models. They also consider the financial and non financial factors as they directed and
indirectly affect the sustainable of organization.
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REFRENCES
Books and journals
Jiang, Y., Ho, Y. C. C., Yan, X. and Tan, Y., 2018. Measuring Lenders’ Responses to Collateral
Information: Evidence from Online Peer-to-Peer Lending. Xiangbin and Tan, Yong,
Measuring Lenders’ Responses to Collateral Information: Evidence from Online Peer-to-
Peer Lending (April 9, 2018).
Mo, H. and Deng, Y., 2016. A new aggregating operator for linguistic information based on D
numbers. International Journal of Uncertainty, Fuzziness and Knowledge-Based
Systems, 24(06), pp.831-846.
Al-Amar, H. A. H., Al-Bayati, Q. A. O. and Al-Haiyali, H. J. K., 2019. The Effectiveness of the
Quality of Performance Using the Cost Accounting Information System in the Control of
Quality Costs Study in the General Company for Electrical Industries. Journal of
University of Babylon for Pure and Applied Sciences, 27(2), pp.115-132.
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