Business Decision Making: Payback Period and Financial & Non-Financial Factors
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Added on  2023/06/07
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This report discusses the comparison of the key aspects of the payback period and financial and non-financial factors that can be used for decision making. It includes the calculation of NPV and payback period for project A and B, interpretation of the results, and the importance of financial and non-financial factors in business decision making.
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Business decision making
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TABLE OF CONTENT INTRODUCTION..........................................................................................................................3 MAIN BODY...................................................................................................................................3 Heading 1.....................................................................................................................................3 Heading 2.....................................................................................................................................3 Heading 3.....................................................................................................................................3 CONCLUSION...............................................................................................................................3 REFERENCES................................................................................................................................4
INTRODUCTION Business decision-making is refers to the step by step process which are help for allowing professionals in order to solve problems by weighing evidence then examining alternatives by choosing a path from there. This is considered as define process which are help to provide an opportunity and also help for review all the decision accordingly. In the presents report will comparing the key aspect of the payback period and financial and non- financial factors that can be used for decision making. MAIN BODY Calculation of NPV for project A YearCash inflows PV factor @ 11% Discounted cash inflows 1600000.90154054.05 268,0000.81255190.33 382,0000.71258365.98 4109,0000.65971801.68 5155,0000.59391984.96 Total discounted cash inflow 331397 Initial investment185000 NPV (Total discounted cash inflows - initial investment) 146397
Computation of Payback period YearCash inflowsCumulative cash inflows 16000060000 268000128000 382000210000 4109000319000 5155000474000 Initial investment185000 Payback period3 -0.2 Payback period3 year and 7 months Calculation of NPV for project B YearCash inflowsPV factor @ 11% Discounted cash inflows 1650000.90158558.56 269,0000.81256001.95 377,0000.71254807.08 4105,0000.65969166.75 5145,0000.59386050.44 Total discounted cash inflow 324585 Initial investment182000 NPV (Total discounted142585
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cash inflows - initial investment) Computation of Payback period YearCash inflowsCumulative cash inflows 16500065000 269000134000 377000211000 4105000316000 5145000461000 Initial investment182000 Payback period3 -0.3 Payback period3 year and 7 months Interpretation-Net present value is referring to the financial metric in order to capture the total value of an investment opportunity. The reason behind calculated NPV of all the project all of cash inflows and outflows can be associated with investment, discount and all future cash flows for present day. The resulting number after adding all positive and negative cash flows together on the basis of investment’s NPV. A positive NPV get by after accounting for time value for money as well as it helps to make money in order to proceed with investment. This is one of the useful term in order to get better for company so that it help to determine a net project is in loss or profit (Knoke, Gosling and Paul, 2020). For the present project it has been identified that project A will be select by company because the NPV of project A is higher than project B. That is why it help company to do better investment in larger scale as well as it is higher than project as NPV that can be help for large number of production. On the other hand, front loaded bidding strategy is help to increase NPV of project and it can be considering as potential disadvantages of following a front loaded bidding strategy that is substantial. In addition to this payback period is refers to the amount and time taken for recover the cost of an investment. This is an investment that reaches a breakeven point. For company it helps
for invest their money to get paid back in order to consider importance of payback period. The benefit of calculated payback period of company in order to identify the required period without any problem as well as it is necessary for involving reliability of project and cons are related to period that help for including time value (Basher and Raboy, 2018). In order to understand the financial data and metrics it is necessary to help company’s management for determine growth and profitability potentials of organisation. Otherwise it can be seen as critical, also management and other internal and external stakeholders are not able to give credit to non- financial factor that’s can impact big. In addition to this, there are financial factor which affect the business decision making in orders to understand the internal factors that influence decision making process also manufacturing company faced problem in order to understand the fixed investment for asset as well as capital structure that has large share of long term capital. The pattern of ownership also influences the financial decision making that is closely held company with one or more shareholder. Liquidity positions can be impact on financial decision making while dividend is normally paid out of cash, sound liquidity positions that can be adopt liberal dividends policy so that working capital is very large in order to understand the past obligations (Dobrowolski and Drozdowski, 2022). On the other side, external factor can be influence related to state of economy and impact of organisation financial decision making. The structure of capital and money market influence financial decision making by it is not easy to select proportion mix of capital structure. Along with this, non- financial factor for investment impact on meeting the requirement of future and current legislation. Then it is necessary to consider all the matching industry standards and good practice which is necessary for improving relationship with customers and supplies in order understands their preferences as well as it help to identify the factor which help for profit in industry. Improving business reputation and relation with local community so that it helps to develop capabilities of business and able to build skills and experiences in management. There are some cases in which financial and non-financial factor are important to consider each of factor which is help for taking effective decision for business in order to invest in better terms (Dusseault and Pasquier, 2021). Conclusion It has been concluded that there is different type of factor which influence business decision making. Choosing company has select project A for further expansion in order to production of
large number of goods. To invests invest in project A will help company to get better percentage of profit.
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REFERENCES Books and Journals Knoke, T., Gosling, E. and Paul, C., 2020. Use and misuse of the net present value in environmental studies.Ecological Economics,174, p.106664. Basher, S.A. and Raboy, D.G., 2018. The misuse of net present value in energy efficiency standards.Renewable and Sustainable Energy Reviews,96, pp.218-225. Dobrowolski, Z. and Drozdowski, G., 2022. Does the Net Present Value as a Financial Metric Fit Investment in Green Energy Security?.Energies,15(1), p.353. Dusseault, B. and Pasquier, P., 2021. Usage of the net present value-at-risk to design ground- coupled heat pump systems under uncertain scenarios.Renewable Energy,173, pp.953- 971. [Online]. Available through: <>