Business Decision Making

This report explores the relevance of capital budgeting tools in the decision-making process, using A&B plc as a case study. It covers the computation of payback period and net present value, and discusses the use of financial and non-financial factors in decision making. The report concludes that managers should select alternatives that provide long-term benefits for the organization.

Business decision making

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Computation of payback period...................................................................................................3
Computation of net present value................................................................................................4
Final decision...............................................................................................................................4
Use of financial as well as non-financial factor for decision making process.............................5
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................7

INTRODUCTION
Business decision making is procedure through which manager able to select best
alternative among given options. For this purpose, capital budgeting tools is applying by
organizations. To understand the relevance of capital budgeting tools in decision making
process, A&B plc has been taken. It is situated in UK and run business in food& beverage
sector. This report defines how payback period, NPV and factors of finance useful for take
future business decision.
TASK 1
Computation of payback period.
Payback period: It is considering as useful tool of financial management. By calculating
payback period manager able to find out time require to fulfil or recover amount of initial
investment. Higher pay back period showcase that business entity took more time in order to
cover up their scratching cost of investment (Yang, 2018).
Project A
Formula: Payback period = Year before cost recovery + Remaining cost / Cash flow for
particular year=
Year 1 project A
Cumulativ
e cash
flow
0 120000
1 30000 30000
2 35000 65000
3 40000 105000
4 60000 170000
5 90000 260000
4.25
Year 1 project B
Cumulativ
e cash
flow
0 150000
1 40000 40000
2 45000 85000
3 50000 135000

4 75000 210000
5 80000 290000
4.25
Computation of net present value.
Net present value: This value is calculating for find out difference between value of
cumulative cash inflow which calculated on the basis of using item elements and initial
investment. Manager select those option through which they can generate high rate of NPV as
compare to other projects (Leyman and Vanhoucke, 2016).
Project A
year Project A
Discount
factor 14%
0 120000 NPV
1 30000 0.877 26310
2 35000 0.769 26915
3 40000 0.675 27000
4 60000 0.592 35520
5 90000 0.519 46710
162455
NPV= cash inflows-
outflow 42455
NPV= cash inflows -
outflow
Project B
project B
150000
40000 0.877 35080
45000 0.769 34605
50000 0.675 33750
75000 0.592 44400
80000 0.519 41520
189355
39355
Final decision
From calculation of payback period and net present value, it has been recognizing that
management department of A&B plc needs to stop outsourcing of these services and invest
within software as they are capable to recover initial cost within 5 years as well as projects

value of NPV is also higher. As compare to project A and B, project A is comparatively
providing more economic benefits due to generate high rate of NPV.
Use of financial as well as non-financial factor for decision making process.
Factors which directly and indirectly related with organization are consider as financial &
non-financial factors. Following are the elements which A&B plc prefer while take decision:
Financial factors: Theses consider those elements which is related with cash flow activities,
following are define below:
Profit: Amount which remains after deducting of all the essential adjustment, are known as
profit, which is generate from running business activities. Growth rate of organization is
identifying on the basis of recognizing rate of profit. Thus manager choose those option
which give high rate of return in future (Engle, Focardi. and Fabozzi, 2016).
Working capital: It is calculated on the basis of deducting value of current assets and current
liabilities. This capital is help in fulfil needs of day to day operations, thus manager took decision
after evaluating availability of working capital in organization.
Non-financial factors: These factors consider as those which are not determine in quantitate
norms. Following are theses;
Skills of employee: Success of organization depend on skills and capabilities of employee
thus manager took decision on the basis of recognise capabilities of their workforce.
Goodwill: It is considering as one of the essential non finance factor. Manager select those
alternative which help in build strong goodwill in market (Wang, Dou and Jia, 2016).
Thus management department of A&B plc took decision on the basis of recognize value of
profits, availability of working capital and they decided to invest in software’s in order to
stop outsourcing of these service as it will provide benefits to them for formulation of strong
reputation in market.
CONCLUSION
From the above analysis it has been concluded that manager in order to maintain sustain
position of organization need to select those alternative which will give long term benefits
for organization in future time period. Thus with the use of calculating payback period,
NPV, they can decide which project is much beneficial for them. Profit, working capital

skills of personals, goodwill all these are the aspect of financial and non-financial factor,
which also play vital role while taken future decision.

REFERENCES
Books and journals
Yang, M. H., 2018. Payback period investigation of the organic Rankine cycle with mixed
working fluids to recover waste heat from the exhaust gas of a large marine diesel
engine. Energy Conversion and Management. 162. pp.189-202.
Leyman, P. and Vanhoucke, M., 2016. Payment models and net present value optimization for
resource-constrained project scheduling. Computers & Industrial Engineering, 91,
pp.139-153.
Engle, R. F., Focardi, S. M. and Fabozzi, F. J., 2016. Practical Applications of Issues in
Applying Financial Econometrics to Factor-Based Modeling in Investment
Management. Practical Applications. 4(2). pp.1-4.
Wang, Q., Dou, J. and Jia, S., 2016. A meta-analytic review of corporate social responsibility
and corporate financial performance: The moderating effect of contextual
factors. Business & Society. 55(8). pp.1083-1121.

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