Business Decision Making

BUSINESS DECISION
MAKING

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Task one...........................................................................................................................................3
Question: 1(a)..............................................................................................................................4
Question: 1(b)..............................................................................................................................7
Question: 1(c)..............................................................................................................................9
Task Two.........................................................................................................................................9
Question: 2(a)..............................................................................................................................9
Question: 2(b)............................................................................................................................11
Question: 2(c)............................................................................................................................11
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Business can’t survive or sustain in the market if there is no appropriate decision making
activities are carried out. The decision making is one of the important process performed in step
by step manner by every businesses (Whiteley, 2017). It allows for solving problems by finding
out the best solutions, examining and selecting the best alternatives and at last it ends by
reviewing whether the decision made was right or not. The present report is based on such aspect
of business decision making where in the first task the various investment appraisal techniques
for evaluating the alternative investments will be discussed by stating advantages and
disadvantages of many such techniques. In the second task of this report by calculating ratios, the
analysis and evaluation of Tesco’s financial performance will be discussed in terms of liquidity
and financial structure. The various limitations of accounting ratios will be discussed along with
other factor that has affect financial performance of Tesco will be discussed.
MAIN BODY
Task one
Whenever there is a need to make a new investment or the management is planning to replace
the existing machines and equipment, then investment appraisal techniques are resorts to for
making correct choice among the available alternative options. There are many investment
appraisal techniques that can be suggested to the senior management for evaluating available
alternatives like Payback period, Accounting Rate of Return or ARR, Net Present Value
technique or NPV and Internal rate of Return or IRR (Thom, 2019). The first two are non -
discounting techniques of investment appraisal and the last two are the discounting techniques of
investment appraisal. The difference lies between the two is that in the former there is no use of
Weighted Average cost of capital in determining and evaluating the investment proposals and
thus no consideration is given to the time value of money. While in the latter one, there is a use
of cost of capital for bringing the value of future cash at its present value by discounting it at the
rate determined as the WACC, and thus a consideration is given to the time value of money.
In case of Dolapo Plc., they are in need of replacing the machine in one of their production
department. They are having two mutually exclusive investment proposals for buying machinery,
but are not sure about which one to choose among these alternatives, that is two different models

of machine; Dysn (Model 1) and Texla (Model 2). By utilizing the respective profiles provided
for the purpose of appraising these two prospective projects, the above mentioned techniques of
investment appraisal will be used to suggest which one to be selected among the two, to ensure
profitable affairs for the company in future. In the next section of this report, the evaluation of
investment proposals through investment appraisal techniques will be performed along with the
explanation of each of these techniques in order to recommend senior management machine
should be selected under each different techniques along with stating the reason for such
selection.
Question: 1(a)
Appraising the two projects using investment appraisal techniques
(i) Payback period method: This techniques of investment appraisal is useful in determining the
time period during which the principle or initial investment made in the project or machine will
be recovered by the concern by generating cash flows using such machines or equipment
(Madura, 2020). The calculation of payback period pertaining to the two prospective projects
available to Dolapo Plc. that is Dysn and Texla are as follows:
Model 1: Depriciation = Initial investments – scrap value / years if life span = 250000 – 10000 /
4 = 60000
Model 2: Depriciation = 400000 – 90000 = 310000 / 4 = 77500
cash flow in £
Per
iod
Dysn:
Model 1
cash flow before
Depriciation
Cumulative
cash flows
Texla:
Model 2
cash flow before
Depriciation
Cumulative
cash flows
Ye
ar0
(£250,0
00)
-250,000 -250,000 -400000 -400000 -400000
1 120000 180000 -70,000 95000 172500 -227500
2 90000 150000 80,000 125000 202500 -25000
3 75000 135000 215,000 115000 192500 167500
4 80000 140000 355,000 125000 202500 370000
Model: 1