Business Decisions Making

Business Decisions
Making

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
1. Calculation of payback period............................................................................................3
2. Calculation of Net Present Value (NPV)............................................................................4
3. Analysis..............................................................................................................................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
The making of decisions is a regular activity for every human being. Decision-making is also a
practice and a mechanism when it relates to corporate organisations. Successful and productive
decisions make businesses prosper and bad ones result in losses. Hence, a most crucial practice
in any organization is corporate decision making process (Weygandt, Kimmel and Aly, 2018).
This report contains detailed analysis of XYZ Plc who has a future plan in investing in laundrette
project or to make investment in new software. The top level management has to take a decision
which is more beneficial for organisation. The following report contains calculation of NPV and
Payback period along with its various advantages and disadvantages.
MAIN BODY
1. Calculation of payback period
Year Project A Cumulative
cash flow
Project B Cumulativ
e cash flow
Year 0 £ 100,000 - £ 120,000 -
Year 1 £ 28,000 £ 28,000 £ 31,000 £ 31,000
Year 2 £ 32,000 £ 60,000 £ 38,000 £ 69,000
Year 3 £ 35,000 £ 95,000 £ 43,000 £ 112,000
Year 4 £ 55,000 £ 150,000 £ 64,000 £ 176,000
Year 5 £ 78,000 £ 228,000 £ 89,000 £ 265,000
Formula:
Payback period: Year before full recovery + unrecoverable cost / cash flow during the year
Project A = 3 + £ 5,000 / £ 55,000
= 3 + 0.90
= 3.90 year
Project B = 4 + £ 56,000 / £ 64,000
= 4 +0.87
= 4.87