Business Decision Making: Payback Period, NPV, Financial and Non-Financial Factors

This document provides insights into the business decision-making process, focusing on the calculation of payback period and net present values (NPV). It includes a case study on DDK Plc, a textile company in the UK, and compares two investment projects. The document also discusses the financial and non-financial factors that should be considered when making business decisions. Subject: Business, Course Code: N/A, Course Name: N/A, College/University: N/A

Business decision making

Table of Contents
INTRODUCTION...........................................................................................................................2
Payback Period............................................................................................................................2
Net Present values........................................................................................................................3
Financial and non- financial factors............................................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Business decision making is that process which allow professionals to solve problem by
examining the best path for the company. Similarly, the present study is also based upon DDK
plc which is a textile company and also operating in UK. Thus, the manager wants to invest in a
project manufacturing belts and wants to choose from two projects. For that the study will
calculate NPV and Payback period. Further, it also describes the financial as well as non-
financial factors use to make decision.
Payback Period
For project A:
Initial Investment = 170000
Year Net cash flow Cumulative Cash flow
1 45000 45000
2 45000 90000
3 35000 125000
4 70000 195000
5 82000 277000
3 years (170000 – 125000 = 45000)
45000 / 70000
3 years 6
month
For project B
Initial investment = 190000
Yea
r Net cash flow Cumulative Cash flow

1 50000 50000
2 45000 95000
3 70000 165000
4 90000 255000
5 90000 345000
3 years (19000 – 165000 = 25000)
25000 / 90000 = 0.3
3 years 3 months
Interpretation: From the above, it has been analyzed that as per the project A, company took 3
years and 6 months to recover the invested amount, whereas in project B it took only 3 year and
3 months. As per the standard criteria, it is suggested to the company to invest amount as per
project B because DDK get the amount in 3 month earlier even after investing high amount as
compared to project A. Moreover, through payback period, company also analyzed that it must
choose shorter tenure through company easily gets the invested amount (Lexutt, 2020).
Therefore, it is suggested to use Project B as compared to Project A.
Net Present values
For project A
Discount rate = 14%
Yea
r Net cash flow
PV factor @
14% Discounted cash inflows
1 45000 0.877 39474
2 45000 0.769 34626
3 35000 0.675 23624
4 70000 0.592 41446
5 82000 0.519 42588
Total discounted cash inflows 181758

Less: initial investment 170000
NPV 11758
For project B
Discount rate = 14%
Yea
r Net cash flow PV factor @ 14% Discounted cash inflows
1 50000 0.877 43860
2 45000 0.769 34626
3 70000 0.675 47248
4 90000 0.592 53287
5 90000 0.519 46743
Total discounted cash
inflows 225764
Less: initial investment 190000
NPV 35764
Interpretation: NPV indicates the future earning generated by a project investment. Similarly,
DDK Plc is also invested into 2 project and through calculation, it is analyzed that company
should choose project B because it provide higher return values as compared to project A.
Therefore, going ahead with project B is more beneficial because it provide good return values as
compared to other project within a same tenure even by investing higher amount (Pham and
et.al., 2021). Also, choosing Project B in order to manufacturing belts and trainers leads to

provide high returns whereas in Project B is only provide 11758 within 5 years. Therefore,
Project B is accepted over project A.
Financial and non- financial factors
In order to make better decision for the company, DDX Plc must consider different
factors that affect the business in any way. For that, different financial (deal with financial
resources) as well as non- financial factors (not measured in finance) may also affected which
are as mentioned below:
Financial factor
Expected return: Before investing, company should consider the financial factor in which
capital budgeting should be includes that helps to determine the future investment and expected
return within a specific tenure (RAHAYU, ROHMAN and HARTO, 2021). By using NPV, it is
also analysed that DDK Plc should use project B for the better return.
Size of a business: The fund requirement depend on the size of a business such that large
companies always require large funds for buying assets. Similarly, the fund require for the
constructing thee buildings within new country, DDK Plc also needed enough fund for their
company and for that enough financial resources required that helps to meet the defined aim.
Though it has a strong financial performance which helps to collect the fund from different
sources and make the investment fruitful.
Liquidity: This position also helps to describe to which an assets or security which can
be quickly sold within a market that affect the asset’s price. Moreover, company should consider
the working and fixed capital requirement that might helps to make better decision for the
company.
Non-financial factor
Meet the current legislation: It is necessary for the company to review the legislation
because it affects the investment made by DDK Plc (Salehi and Arianpoor, 2021). Before any

investment, it is necessary for the company to ensure that current legislation do not affect the
business and its operations.
Employees: It is also necessary for the company to hire the employees on the basis of
requirement. Thus, it is also necessary for the company to increase the staff morale because it
helps them to increase the overall performance and make better decisions.
Relationship: DDX must improve the relationship with suppliers and customers which in
turn assists to successful investment within other countries. Further, it is also analyzed that with
the help of improving relationship with local community, company is able to sustain the brand
image at global level (Non-financial factors, 2020).
Capability of a business: In order to make better decision, it is essential for the company
to first determine their overall skills and experience of news areas that helps to successfully
invest within further countries. If not, then company must develop strategies in order to improve
the capabilities of a business in order to increase the overall performance.
CONCLUSION
By summing up above report it has been concluded that by using payback and NPV
method, DDK Plc must go with project B because company get higher returns and also recover
the invested amounted within 3 years and 3 months. Further, in order to make better decision for
investment company must consider the employee welfare and size of a business, liquidity and
employees, relationship with local community etc. this in turn assist company to make better
decision or the welfare of a firm.

REFERENCES
Books and Journals
Lexutt, E., 2020. Different roads to servitization success–A configurational analysis of financial
and non-financial service performance. Industrial Marketing Management. 84. pp.105-125.
Pham, Q.T. and et.al., 2021. Financial reporting quality in pandemic era: case analysis of
Vietnamese enterprises. Journal of Sustainable Finance & Investment, pp.1-23.
RAHAYU, S., ROHMAN, A. and HARTO, P., 2021. Herding behavior model in investment
decision on Emerging Markets: Experimental in Indonesia. The Journal of Asian Finance,
Economics, and Business. 8(1). pp.53-59.
Salehi, M. and Arianpoor, A., 2021. The relationship among financial and non-financial aspects
of business sustainability performance: evidence from Iranian panel data. The TQM Journal.
Online
Non-financial factors. 2020. [Online]. Available through:
<https://www.nibusinessinfo.co.uk/content/non-financial-factors-investment-appraisal>.