Analysis of Payback Period, Net Present Value, and Financial and Non-Financial Factors in Decision Making

Business decision making

Contents
ESSAY TOPIC................................................................................................................................1
ESSAY BODY................................................................................................................................1
Introduction..................................................................................................................................1
Main body....................................................................................................................................1
Conclusion...................................................................................................................................5
REFERENCES................................................................................................................................6

ESSAY TOPIC
“An analysis on payback period, net present value, and financial and non financial factors
and how they aid in decision making”
ESSAY BODY
Introduction
X Plc is a vehicle parts manufacturing company which operates in the region of United
Kingdom and few parts of Europe. This organisation is planning to invest in a new business, for
which they have finalised two distinctive projects. These projects are analysed in order to aid X
Plc in decision making by the help of NPV, Payback period and other financial and non financial
factors (Fry, 2019).
Main body
Net present value is the time value of money which a project can facilitate with to an
organisation (Chen, Treviño and Humphrey, 2019). This the difference between the predicted
cash inflows and outflows which assists in computing the future profitability and viability of a
project (Hopkinson, 2017). For the case of X plc, two projects which are Project A
“Technological project” and Project B “Mechanical project” are compared by determining NPV
of both the projects.
Formula of NPV:
Calculation of NPV:
PROJECT A: TECHNOLOGICAL PROJECT
Formula Calculation Result
Net cash flow for year 1 (Cash flows) / ( 1 + r)t (8000) / (1+10%)1 7272.727273
Net cash flow for year 2 (Cash flows) / ( 1 + r)t (10000) / (1+10%)2 8264.46281
Net cash flow for year 3 (Cash flows) / ( 1 + r)t (12000) / (1+10%)3 9015.777611
Net cash flow for year 4 (Cash flows) / ( 1 + r)t (15000) / (1+10%)4 10245.20183
1