Business Decision Making: Investment Appraisal Techniques and Factors

This essay discusses investment appraisal techniques and factors that affect business decision making. It includes computation of payback period and net present value of Akwaaba Plc, analysis of results, and comparison of key aspects of investment appraisal techniques and financial and non-financial factors.

Essay on Business
Decision Making
Student id <225002>
BA in business Studies
(Foundation Year)
University of Suffolk

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK ..............................................................................................................................................3
Computation of payback period of Akwaaba Plc:..................................................................3
Computation of Net Present Value of Akwaaba Plc.............................................................4
Analysis of above computed results and make final decision: ..............................................5
Comparison of key aspect of investment appraisal techniques and financial and non financial
factors that used in decision making: ....................................................................................6
CONCLUSION ...............................................................................................................................6
REFERENCES................................................................................................................................8

INTRODUCTION
As per below report, investment appraisal techniques are used to make investment
decisions by analysing future performance (Abidoye and Chan, 2018). Akwaaba plc is a textile
manufacturing company that functional in United kingdom and in other European nations. It
trade in various product such as bags and shoes but due to deficiency of available resources it
become unproductive. Company has to choose one product from bag and shoes. In this report
growth and future profitability of both the product is analysed to choose most profitable
investment. Investment appraisal techniques, financial and non financial factors are also
discussed below which help in decision making.
TASK
Computation of payback period of Akwaaba Plc:
Every company measure the future performance and goodwill of a project before
investing into it. Akwaaba plc also using some various types of investment techniques to
measure profitability and returns of both the investment. These techniques involves pay back
period method which refers to the time taken by an investment to recover its cost (Kaushik and
Singh, 2022). This technique help Akwaaba plc in decision making to select one most profitable
investment. Payback period method is applied in both the investment to measure which one
recover its cost more efficiently. The Computation of pay back period of both the products are as
follows:
Year Project A – Bags
Net cashflow £
Cash flow Cumulative cash flows
0 -180000 0
1 48,000 48000
2 62,000 110000
3 85,000
4 1,00,000
5 1,10,000
Payback period of project A = Years Before Break-Even + (Uncovered Amount / Cash
Flow in Recovery Year)

= 2 years + (70000 / 85000)
= 2 + 0.82
Pay back period Of Project A = 2.82 years
Year Project B –Shoes
Net cashflow £
Cash flow Cumulative cash flow
0 -170000 0
1 45,000 45000
2 65,000 110000
3 82,000
4 98,000
5 1,10,000
Payback period of project B = Years Before Break-Even + (Uncovered Amount / Cash
Flow in Recovery Year)
= 2 years + (60000 / 82000)
= 2 + 0.731
Payback period of project B = 2.73 years
Computation of Net Present Value of Akwaaba Plc
Net present value help in measuring difference between cash inflows and outflows over the
period of an investment life cycle. It help in measuring future profitability or results of an investment
(Lu, Kweh and Wang, 2021).
Project A – Bags
Net cashflow £
Year Cash Flows PV Factor @ 14% Present Value
1 48,000 0.877 42096
2 62,000 0.769 47678
3 85,000 0.675 57375
4 1,00,000 0.592 59200

5 1,10,000 0.519 57090
Present value of Cash Inflow 263439
Net Present Value = Present value of cash inflow – Initial Cash investment
= 263439 – 180000
Net Present Value of project A = 83439
Project B –Shoes
Net cashflow £
Year Cash Flows PV Factor @ 14% Present Value
1 45,000 0.877 39465
2 65,000 0.769 49985
3 82,000 0.675 55350
4 98,000 0.592 58016
5 1,10,000 0.519 57090
Present value of Cash Inflow 259906
Net Present Value = Present value of cash inflow – Initial Cash investment
= 259906 – 170000
Net Present Value of project B = 89906
Analysis of above computed results and make final decision:
Investment appraisal techniques plays important role in analysing future performance of
both the projects. Investment appraisal techniques includes payback period and net present value
method which help in deciding best possible investment for Akwaaba plc. These methods help in
comparing future growth of both the projects which are project of bag and project of shoes. As
per above calculation of payback period and NPV it is recommanded that project B (project of
shoes) is beneficial for investment purpose as compare to Project A (project of bags). NPV of
project B is more than project A which means project of shoes is more valuable. Pay back period
of both the project is almost similar so decision is only make on the basis of net present value
method.

Comparison of key aspect of investment appraisal techniques and financial and non financial
factors that used in decision making:
Investment appraisal techniques help in deciding whether or not a investment project
would offer the awaited returns in the future. Payback and NPV are most common used financial
techniques when analysing investment. Net present value only consider time factor not money on
the other hand pack back only consider money factor not time. Financial and non-financial
factors that used in decision making are as follows:
Financial factors:
Inflection rate: Inflation rate is the rate which shows the rapid growth in the price of a
commodity that decrease the spending and saving ability of a individual. Inflection rate minimise
the profits that resulting as shortage in finance for investment and growth of the firm. It also
effect liquidity position of firm by increasing interest rates (Paiva and et.al., 2021).
Interest rate: Interest rate refers to the percentage amount which charged by lender to get
accession to capital. Interest rate affect investment decisions. It increase or decrease the cost of
investment and also create problem while taking loans.
Non-financial factors:
opportunity cost: It indicate the positive advantage that a individual, investor or firm
misses out while accepting one option over another. A company occur expenses in issuing
liability and equity share capital to balance creditor and stakeholders for the risk of investment
(Pereira and et.al., 2021).
Social factors: In the economic environment people create an impact over investment
decisions. Companies using leveraging method which help them to sustain in target market.
Major social factor which influence investment decisions of a firm are cultural attitudes and
market experience.
CONCLUSION
In the above report it can be concluded that investment appraisal techniques are important
aspect of decision making process. Payback period is computed above to evaluate the time take
by project to recoup its cost. Investment of project A is 180000 and project B is 170000 and their
payback period are 2.82 year and 2.73 year respectively which determines that project B can
meet break-even point more efficiently as compare to project A. Net present value of project B is

6,467 £ more than the project A which states that project of shoes is more profitable for
investment purpose. Financial and non financial functions are discussed above to know how they
effect decision making.

REFERENCES
Books and Journals
Abidoye, R.B. and Chan, A.P., 2018. Achieving property valuation accuracy in developing
countries: the implication of data source. International Journal of Housing Markets and
Analysis.
Kaushik, A. and Singh, D., 2022. Performance evaluation of advanced manufacturing
technologies in small and medium enterprises located in Northern India. International
Journal of Business Excellence. 26(3). pp.281-298.
Lu, W.M., Kweh, Q.L. and Wang, C.W., 2021. Integration and application of rough sets and data
envelopment analysis for assessments of the investment trusts industry. Annals of
Operations Research. 296(1). pp.163-194.
Paiva, B.M. and et.al., 2021. Strategizing sustainability in the banking industry using fuzzy
cognitive maps and system dynamics. International Journal of Sustainable Development
& World Ecology. 28(2). pp.93-108.
Pereira, A.L.C. and et.al., 2021. Accuracy of CAD-CAM systems for removable partial denture
framework fabrication: A systematic review. The Journal of Prosthetic Dentistry.
125(2), pp.241-248.