Business Decision Making: Tools and Analysis for AJ plc

This essay discusses the different tools used in business decision making and provides an analysis of the factors affecting AJ plc's investment decision between two vegan product projects. The essay covers the payback period, net present value, financial and non-financial aspects, and concludes with a recommendation based on the analysis.

Essay on Business
Decision-making

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK...............................................................................................................................................3
Calculation of different tools..................................................................................................3
Analysis of above-mentioned factors.....................................................................................6
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Decision-making refers to the process of taking decisions by recognizing a goal, collecting
information, and comparing the alternatives. Different steps that are taken by a business that are
done in the view of attaining the missions and visions of the business are referred to as business
decision-making (Jiang, and et.al. 2021). In these the first step that is taken up by the business is
setting up objectives and goals and after that making a decision that would help the business
achieve it. This report tries to aid the strategic managers of AJ plc in order to determine which
project they should take up. This is done with the help of tools like payback period, net present
valuation and other financial and non-financial aspects.
TASK
This report revolves around the case of AJ plc. AJ plc is a sweets producing business who is
making arrangements to participate in a plan related to vegan products. The strategic managers
of the firm have drafted 2 different manufacturing plans which are, Project A- Vegan chocolates,
Project B- Vegan spread. The company is planning to invest in one of the projects. The further
discussion may help the strategic managers in deciding which project will be beneficial for the
business to invest in (Vieira, Pinto-Varela, and Barbosa-Póvoa, 2019). Discussion related to
different tools used in decision-making are as follows:
Calculation of different tools
Payback Period is that accounting concept which calculates the duration by which the company
will gain its primary cost of venture (Ferraris, Mazzoleni, Devalle, and Couturier, 2019). This
tool helps the strategic managers to evaluate the two or more investment decisions in the
business. AJ plc is the investor who wants to choose which plan of venture reimburses back its
primary investment at earliest.
Duration Yearly cash flow
of A (£)
Cumulative cash
flow of A (£)
Yearly cash flow
of B (£)
Cumulative cash
flow of B (£)
0 (Initial
Investment)
-140,000 -140,000 -120,000 -120,000
1 year 52,000 -88,000 46,000 -74,000
2 year 58,000 -30,000 60,000 -14,000

3 year 82,000 52,000 72,000 58,000
4 year 105,000 157,000 89,000 147,000
5 year 118,000 275,000 108,000 255,000
Payback Period = The period up to n-1 + cumulative cash flow in n-1 year / Cash inflow
during the nth year
n = year in which collective cash flow curved constructive
Payback Period of Project A= 2 + 30000 / 82000
= 2 + ( 0.36 x 12 months )
= 2 + 4.3
= 2 Years and 4.3 months
Project A has payback period of 2 years and 4.3 months.
Payback Period of Project B= 2 + 14000 / 72000
= 2 + ( 0.19 x12 months )
= 2 + 2.33
= 2 years and 2.33 months
Project B has payback period of 2 years and 2.33 months.
Net Present Value (NPV) is another device in accountancy which ascertains the present
valuation of all the upcoming cash flows (Tognazzo, and et. al., 2020). This is done using
discount factor which takes into consideration the changes in inflation rates. NPV displays the
success of the project in future. Next are the calculations of NPV of different projects of AJ plc.
Net Present Value= PV cash flows – Initial investment
Calculation of PV cash flow for plan A
Cash flows of plan PV factor PV Cash flows
52,000 0.901 46,852
58,000 0.812 47,096
82,000 0.731 59,942
1,05,000 0.659 69,195
1,18,000 0.593 69,974

TOTAL £ 2,93,059
Net Present Value of Plan A= 2,93,059 – 1,40,000
= £ 1,53,059
Project A has Net present value of £ 153,059
Calculation of PV cash flow for plan B
Cash flows of project PV factor PV Cash flows
46,000 0.901 41,446
60,000 0.812 48,720
72,000 0.731 52,632
89,000 0.659 58,651
1,08,000 0.593 64,044
TOTAL £ 2,65,493
Net Present Value of Project B = 2,65,493 – 1,20,000
= £ 1,45,493
Project B has Net present value of £ 145,493.
Financial and Non-financial Aspects are different issues that also derives the decision making
strategies of a enterprise. The financial factors that influence the investment decision are the
monetary requirements, inflation rate in the economy, recession etc (Stokman, and et.al. 2020).
These basically refers to the economic environment/condition of the country the business is
planning to invest in. The non-financial factors include all other factor than economic issues that
have an effect on the choice making. These includes, needs and wants of the general public from
the business and if these needs are met. The tactical directors are required to consume a deep
awareness onto these features.

Analysis of above-mentioned factors
Payback period states to the period in which the stakeholder will collect back its original asset.
The lesser the payback period the more profitable the project becomes. In the case of AJ plc,
plan B has more NPV than plan A. project B has payback period of 2 years and 2 months which
means investing in plan B is more feasible according to repayment period.
Net Present Value is the better if it is greater. Higher NPV makes the project more viable. In the
case of AJ plc, Project A has more NPV of 153,059 this makes vegan chocolates more profitable
than the vegan spread.
Non-financial factors in the case of AJ plc is the demand of the two alternatives. A study of 2019
shows that the demand for vegan chocolates have increased significantly in the market due to
health and production doubts among the customers. This makes project A more desirable for AJ
plc. Financial factors include Brexit which would increase the cost of production.
CONCLUSION
The above report concludes that the different tools are utilized in the accounting aspect to help
the management of the company to decide whether to invest in an option or not. Repayment
period, net existing value, monetary and non-financial issues consequence and aids the strategic
managers to choose 1 project to invest in from the pool of replacements. If AJ plc takes into
consideration the repayment period, then plan B is more desirable and if it drives by NPV, Plan
A is more feasible. The non-financial factors displays that vegan chocolates are more viable as
they have growing demand in the market.

REFERENCES
Books and Journals
Jiang, Y., and et.al. 2021. Perceptions and experiences of older patients and healthcare
professionals regarding shared decision-making in pulmonary rehabilitation: A
qualitative study. Clinical Rehabilitation, p.02692155211010279.
Vieira, M., Pinto-Varela, T. and Barbosa-Póvoa, A.P., 2019. A model-based decision support
framework for the optimisation of production planning in the biopharmaceutical
industry. Computers & Industrial Engineering. 129. pp.354-367.
Ferraris, A., Mazzoleni, A., Devalle, A. and Couturier, J., 2019. Big data analytics capabilities
and knowledge management: impact on firm performance. Management Decision.
Tognazzo, A., and et. al., 2020. Editorial special issue entrepreneurial decision-making and
behavior.
Stokman, F.N., and et.al. 2020. 4. Modeling Collective Decision-making. In The Handbook of
Rational Choice Social Research (pp. 151-182). Stanford University Press.