Business Decision Making

Business Decision Making

Essay
The business decision-making is a gradual move that allows experts to address problems by
measuring validity, analyzing options, and choosing a path from that. This marked circle also
offers an opportunity towards the end to examine whether the choice was the right one. To
resolve a choice, the organization should first make a difference whether an organization needs
to address or the research it needs to respond to. Their choice is unique. In the event that they
identify the issue to be addressed, or if the issue they have chosen is too broad, the group will
reject the chosen train before it even leaves the station (Brigham and Houston, 2021).
Decision making based on Payback period
Payback period method is based on the criteria that project having less payback period is better.
Because this will cover the invested amount quicker.
Year Project A – Belt Project Cumulative
Net cash flow £ cash flow
0 -£ 170,000 -£ 170,000
1 £ 45,000 -£ 125,000
2 £ 45,000 -£ 80,000
3 £ 35,000 -£ 45,000
4 £ 70,000 £ 25,000
5 £ 82,000 £ 107,000
Payback = 3 + (45,000 / 70,000)
3.64 years
Year Project B –Trainers Project Cumulative
Net cash flow £ cash flow
0 -£ 190,000 -£ 190,000
1 £ 50,000 -£ 140,000
2 £ 45,000 -£ 95,000
3 £ 70,000 -£ 25,000
4 £ 90,000 £ 65,000
5 £ 90,000 £ 155,000
Payback = 3 + (25,000 / 90,000)
3 + 0.278
3.28 years

Based on above payback calculation, Project B should be selected as it is taking less time to
cover initial investment amount compare to Project A. Hence, firm should decide to choose
Project B.
Net Present Value
It is based on discounted cash flow method, where existing cash inflows are discounted at fixed
rate. Positive value of NPV is preferred for acceptance.
Year Project A – Belt Project
Discount rate
@14%
Net cash flow £
0 -£ 170,000 -£ 170,000
1 £ 45,000 0.877 £ 39,473.68
2 £ 45,000 0.769 £ 34,626.04
3 £ 35,000 0.675 £ 23,624.00
4 £ 70,000 0.592 £ 41,445.62
5 £ 82,000 0.519 £ 42,588.23
NPV £ 11,758
Year Project B –Trainers Project
Discount rate
@14% DCF
Net cash flow £
0 -£ 190,000 -£ 190,000
1 £ 50,000 0.877 £ 43,859.65
2 £ 45,000 0.769 £ 34,626.04
3 £ 70,000 0.675 £ 47,248.01
4 £ 90,000 0.592 £ 53,287.22
5 £ 90,000 0.519 £ 46,743.18
NPV £ 35,764