Business Decision Making: Payback Period, Net Present Value, and Factors Affecting Decisions

This essay discusses the payback period and net present value of DD plc's projects, as well as the financial and non-financial factors affecting business decisions. It includes a computation of the payback period and net present value for two separate projects of DD plc, and an explanation of financial and non-financial factors affecting business decisions. The essay concludes that employing capital budgeting tools aids in making judgments about the viability of various projects.

Essay on Business
Decision Making

Contents
INTRODUCTION...........................................................................................................................................3
MAIN BODY.................................................................................................................................................3
1. Computation of pay-back period of DD plc..........................................................................................3
2. Calculating net present value..............................................................................................................4
3. Explaining financial and non financial factors affecting business decisions.........................................5
CONCLUSION...............................................................................................................................................6
REFERENCES................................................................................................................................................7

INTRODUCTION
Business decision making is the process wherein every corporation must make many
decisions about the operation and financial operation of a company (Haas, Davis and Hanich,
2021). This report includes the estimation of several financial analysis approaches including
payback time and net present value for two separate projects of DD plc which is a vegetarian
food manufacturing company based in the United Kingdom. This study also includes various
financial and non-financial decisions that have an effect on the product procedure.
MAIN BODY
1. Computation of pay-back period of DD plc.
Payback period: There are several methods for evaluating enterprises in capital budgeting
choices. The old technique does not take into account the time worth of money. This application
is used to determine the length of time it takes to recoup the cost of capital. When reviewing
initiatives, the shorter repayment time, the greater it is for a company, while initiatives with a
longer repayment period are not deemed beneficial. It is derived by combining the original
investment with the mean annual contributions (Kir and Erdogan, 2021).
Project A (smoothies) Project B (non diary )
Year Cash flow Cumulative cash
flows
Cash flow Cumulative cash flow
0 -158000 -158000 -155000 -155000
1 72000 86000 71,000 -84000
2 78000 -8000 73,000 -11000
3 82000 74000 97,000 86000
4 110000 184000 118,000 32000
5 125000 309000 121,000 153000

Payback period (project A) = 2 year + 8000 / 82000
= 2 year + 0.097
= 2.09 years.
Payback period (project B) = 2 years + (155000 - 144000) / 97000
= 2 Years + 11000 / 97000
= 2.11 years
According to DD plc's calculations, project A has a payback period of 2.09 years while project B
has a payback period of 2.11 years. As a result, it may be argued that project A receives its
financial return in shorter time than project B. As a result, project A is more lucrative for the
company.
2. Calculating net present value
Net Present value: There are additional investment assessment methodologies that incorporate
the time value and use a discounted factor to adapt data points to actual costs. It's handy for
picking tasks that are strictly incompatible. The differential between the total present value of
cash inflows and total present value is used to compute it. Its worth is measured by the ratio of
zero (Anderson and Burchell, 2021).
Project A (Smoothies) Project B (Non dairy)
Year Cash flow Discount factor
@15%
Present
value
Cash flow Discount
factor @15%
Present value
1 72000 0.87 62568 71,000 0.87 61699
2 78000 0.756 58968 73,000 0.76 55188
3 82000 0.66 53874 97,000 0.66 63729
4 110000 0.57 62810 118,000 0.57 67378
5 125000 0.5 62125 121,000 0.5 60137

300345 308131
Project A = Net present value of cash inflow – Net present value of cash outflow
= 300345 – 158000
= 142345
Project B = Net present value of cash inflow – Net present value of cash outflow
= 308131 – 155000
= 153131
Project A has a net present value of 142345, whereas project B has a net present value of
153131. The NPV of Project B is greater than that of Project A. As a result, project B will be
chosen from the two tasks listed above.
3. Explaining financial and non financial factors affecting business decisions
A business decision-making procedure is one in which a corporation is needed to make
decisions in order to achieve its goals. Each organisation creates requirements, which are then
compared to the actual rules. Variations in productivity can be identified by measuring
performance, and great executives can rewrite the chance to fix them. There are several financial
and non-financial issues that may be discussed as follows:
Financial factor: These elements have a direct impact on organizational choices, including
solvency, leveraged, and the company's organizational structure.
Capital investment decisions concern the financing mix used to fund the company. Growing debt
in a company allows minimizing the price of financing and raising the company's value. As a
result, know the company's financial and operational aids in making many financial options.
Liquidity is critical for the proper functioning of a firm. Liquid assets are ones that can be turned
into cash quickly. Keeping the organization's solvency at an effective point is a major task.

Inflation can be defined as a widespread increase in the value of the currency. The overall rise in
commodity prices in the market has an influence on the public's purchasing power. It has an
effect on customer buying power (Namdar and et.al, 2021).
Non financial factors: Leaders and managers may create excellent judgments on essential
changes if they monitor non-financial elements earlier on. Companies can plan to keep for
instance, if a customer support class is essential. The following elements have an indirect effect
on the product procedure:
Policies and regulation: Each government adheres to the policies and regulation enacted by the
parliament of that nation. Policy changes issued by government have an influence on the
operation of a company. For example, a rise in import tariffs diminishes trade operations, which
affects the company's operational profits. A company's strategies should be adaptable so that new
arrangements do not have an influence on the bank's earnings (Modgil and et.al, 2021).
Client relationship: Establishing excellent client interactions helps to improve promotional
activities and promote customer confidence. Furthermore, a profitable firm should concentrate
on keeping strong connections with clients.
CONCLUSION
Based on the findings of the preceding research, it is possible to infer that employing capital
budgeting tools aids in making judgments about the viability of various projects. It indicates the
value of dividends distributed to investors. Although the influence of financial and non-financial
elements is uncontrolled, numerous strategies may be used to reduce the influence of different
factors and resulting in successful making decisions.

REFERENCES
Books and Journal
Haas, B., Davis, R. and Hanich, Q., 2021. Regional fisheries management: Virtual decision
making in a pandemic. Marine Polic.. 125. p.104288.
Kir, H. and Erdogan, N., 2021. A knowledge-intensive adaptive business process management
framework. Information Systems. 95. p.101639.
Anderson, S. E. and Burchell, J. M., 2021. The effects of spirituality and moral intensity on
ethical business decisions: A cross-sectional study. Journal of Business Ethics. 168(1).
pp.137-149.
Namdar, J. and et.al, 2021. Business continuity-inspired resilient supply chain network
design. International Journal of Production Research. 59(5). pp.1331-1367.
Modgil, S. and et.al, 2021. Big data-enabled large-scale group decision making for circular
economy: An emerging market context. Technological Forecasting and Social
Change. 166. p.120607.