Business Decision Making with NPV and Payback Period

Essay on business decision
making

Contents
ESSAY TOPIC................................................................................................................................1
INTRODUCTION...........................................................................................................................1
ESSAY BODY................................................................................................................................1
Net present value with its benefits and drawbacks......................................................................1
Payback period with its benefits and drawbacks.........................................................................3
Financial and non-financial factors.............................................................................................5
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

ESSAY TOPIC
“An understanding of the decision making for the business with the help of NPV method
and payback period method along with various financial and non-financial factors”
INTRODUCTION
Business decision making is must for every organisation to survive in competitive market
world for longer period of time. As business organisation engaged in various projects which
drives them to achieve growth and success but analysing various options and select best one
helps them in getting maximum profitable result (Anderson and Burchell, 2019). The present
essay is based on the case study of XYZ Plc whose strategic management decides whether to
invest funds in undertaking software or Laundrette that they previous outsourced. The essay
discusses different investment appraisal techniques along with their benefits and drawbacks.
ESSAY BODY
XYZ Plc. is UK based hotel chain currently operating its business operations in UK and
other parts of Europe. At present, the hotel outsourced different services including laundrette and
hotel software due to insufficient amount of resources but now their strategic managers decides
to minimise business cost by undertaking either one of these services. To make a better profitable
decision, the managers uses two investment appraisal technique such as NPV and Payback
period method. In the current scenario, initial investment the hotel decides to make for
undertaking software is £100,000 whereas same for Laundrette is £120,000 with £120,000
discount rate f return.
Net present value with its benefits and drawbacks
Net present value: If a business-like hospitality business such as XYZ plc is willing to
invest in a new project then this method is used by them in order to execute investment
decisions. Net present value is the difference between present value of cash influx and present
value of cash outlay (Raghunath and Devi, 2018). This factor is having prominent role in
investment planning and to recognise profitability of the proposed project. This method is having
several benefits and drawbacks as well which are enumerated as under:
Advantages
 This factor considers present value factor by which real income can be calculated along
with all the other factors such as inflation and other.
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