Business Decision Making

BUSINESS DECISION
MAKING

Contents
INTRODUCTION.....................................................................................................................................3
MAIN BODY.............................................................................................................................................3
1. Calculation of payback period.........................................................................................................3
2. Calculation of NPV:........................................................................................................................4
3. Analysis:..........................................................................................................................................5
CONCLUSION..........................................................................................................................................8
REFERENCES..........................................................................................................................................9

INTRODUCTION
In business entities, it is important to take decision in accordance of suitable basis and
framework. Eventually, financial decisions are need to be taken in an appropriate manner and for
this purpose there are a range of techniques (Black, 2019). In order to choose a suitable
investment, there are various investment appraisal methods on which this report is based. In the
project report, there is a company that wants to invest in two projects: Dishwashing and
Software. For this purpose, both proposals have been assessed by help of investment appraisal
methods such as payback period, NPV etc.
MAIN BODY
1. Calculation of payback period.
Payback period: Year before recovery + Amount to be recovered/Next years’ cash flow.
Project A(Dishwashing)
Investment: £120000
Year Cash flow (In £) Cumulative cash flow
1 30000 30000
2 35000 65000
3 40000 105000
4 60000 165000
5 90000 255000
Year before recovery: 3rd year
Amount to be recover: £ (120000-105000)
= £15000
Next years’ cash flow: 60000
Hence,
Payback period: 2+15000/60000
= 2+0.25