Application of Investment Appraisal Techniques for Business Decision Making

BUSINESS DECISION
MAKING

TABLE OF CONTENTS
REFERENCES...........................................................................................................................7

Decision making is something based on which business is run. The decisions are
taken in respect to the business expansion or further investment proposals. This essay is about
the application of investment appraisal techniques for the purpose of taking decisions on
investment prospects.
The two investment appraisal techniques that will be used XYZ plc for evaluating the
profitability of the two project A and project B.
Net present value
It is the capital budgeting technique which takes into account the present value of cash
flow for determining the profitability associated with the project. It is the difference between
the present value of cash inflow and cash outflow (Wang and et.al, 2017). The positive NPV
indicates that the company can proceed with the project and invest in it. On the other hand,
the negative NPV shows that the project is not profitable and feasible for the business.
Project A
Computation of NPV
Year Cash inflows
PV factor
@ 11%
Discounted
cash
inflows
1 28000 0.901 25225.2
2 32000 0.812 25972
3 35000 0.731 25592
4 55000 0.659 36230
5 78000 0.593 46289
Total discounted cash
inflow 159308
Initial investment 100000
NPV (Total
discounted cash
inflows - initial
investment) 59308