This report assesses the investment decision-making of A&B Plc, a restaurant chain in the UK. It analyzes the payback period and net present value methods for investment evaluation. Financial and non-financial factors are also discussed.
Contribute Materials
Your contribution can guide someone’s learning journey. Share your
documents today.
Bussines Decision Making
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
Table of Contents INTRODUCTION...........................................................................................................................3 MAIN BODY...................................................................................................................................3 Investment decision-making........................................................................................................3 CONCLUSION................................................................................................................................3 REFERENCES................................................................................................................................4
INTRODUCTION Business decision-making is all about assessment in respect to analysis aboutcompany should invest in a particular project or not. This report is based on the case study of A&B Plc in respect to its investment decision-making. The organisation is a restaurant chain operating its business in United Kingdom. This report is an assessment of company in respect to its investmentinprojects.Henceforth,reportwouldassesstheinvestmentdecision-making company has made in its projects. MAIN BODY Investment decision-making The payback period method Payback period method is an investment decision method that make assessment in respect to the investment decision making of company. This method involves projected cash outflow and inflow in the investment decision. The estimated cash inflow is compared with the estimated cash outflow to assess the investment decision of company. This method make investment decision-making on the basis of the estimated time needed to recover the overall investment in project (Awais and et.al., 2016). The project that contain the least payback period time would be a preferable choice for investment in this project. By comparing the total cash flows with the initial level of investment in the project payback period is calculated in this method. Project A- Dishwashing Project YearCash Inflow (£)Accumulated Cash Inflow (£) 13000030000 23500065000 (30000 + 35000) 340000105000(30000+35000+ 40000) 460000165000(30000+35000+ 40000 + 60000) 590000255000(30000+35000+ 40000 + 60000 + 90000) Initial Investment =£120000
Payback Period=3 year +£15000 (£120000 -£105000)/£60000 * 12 3 year and 3 months. Project B YearCash Inflow (£)Accumulated Cash Inflow (£) 14000040000 24500085000 (40000 + 45000) 350000135000(40000+45000+ 50000) 475000210000(40000+45000+ 50000 + 75000) 580000290000(40000+45000+ 50000 + 75000 + 80000)
Paraphrase This Document
Need a fresh take? Get an instant paraphrase of this document with our AI Paraphraser
Initial Investment =£150000 Payback Period =3 Year +£15000 (£150000 –£135000) /£75000 * 12 3 years and 2.4 months Justification Company should invest in Project B as the payback period of project B is lesser than the project A. Project B will allow the company to recover its investment in lesser time frame as compare to other projects. This project would benefit the company in term of more cash flows as comparer to project A. Net Present Value Method Net present value is an investment method that assess the investment decision-making of company on the basis of net present value involve in project. As per the concept of this method total estimated cash inflow is compare with total cash outflow to analysis the investment decision-making of company. This method also assesses cash inflow by involving time value of money as well in the cash inflow(Irshad, Badshah and Hakam, 2016). This method also covers time value of money in calculating estimated cash inflow. This method is more preferable technique to evaluate the investment decision-making of company. Project A- Dishwashing Project YearCash Inflow (£)Time value of money @ 14 % CashInflow(£) (After time value of money) 1300000.8826400 2350000.7726950 3400000.6726800 4600000.5935400 5900000.5246800 Total Investment =£120000 Total cash inflow =£162350(£26400 +£26950 +£26800 +£35400 +£46800) Net Present Value =Total cash inflow – Initial Investment £42350 (£162350 –£120000) 1
Project B YearCash Inflow (£)Time value of money @ 14 % CashInflow(£) (After time value of money) 1400000.8835200 2450000.7734650 3500000.6733500 4750000.5944250 5800000.5241600 Initial Investment =£150000 Total cash inflow =£189200 (£35200 +£34650 +£33500 +£44250 +£41600) Net Present Value Total cash inflow – Initial Investment £39200 (£189200 –£150000) Justification On the basis of the Net Present Value Method it is analysed that project A contains more Net Present Value as compare to Project B. On the basis of the Net Present Value it is analysed that company must invest in Project A. Due to better net present value company contains more benefits while investing in project A as compared to Project B. Financial Factors:Financial factor involve various factors like total life of the project, scrape value at the end of the life of project. Depreciation is also a key financial factor that involve in the projects (Lei, 2019). Methods like Net Present Value, Payback, IRR are also the financial factors that involve in the investment decision-making of the project. Financial factor also involve all types of cost and profits company generate from such specific investment project. 2
Financial factor contains all typesof statistical aspects associated with the project or investment decision-making. Non financial factors:Non financial factor contain all types of factors that do not contain any type of statistical information and figure. Different factors like culture of company, skill of employees, technicality, resources of company and different other aspects involved infinancial factor. These factors put a huge impact over investment decision-making of company. Skills of employee in company play a huge role in taking investment decisions. Resources of company is also a key factor part of investment decision-making in organization. How much the resources needed to implement any investment decision so that company can take the complete advantage from the investment decision-making (Jackson and Orr, 2019). Company need to assess all these non financial factors before taking any decision related to investment in company. CONCLUSION This report has involved different factors related to investment decision-making in company. Methods like payback period, net present value method are involved in taking investment decision-making. Payback period method consider total time needed to recover the total investment in a project. Net present value method compares total investment with the estimated total cash inflow from the project to make the investment decision in project. Financial factors involve all this factors to take investment decision. Non financial factors involve culture, resources of company and different other aspects in taking investment decision. 3
Secure Best Marks with AI Grader
Need help grading? Try our AI Grader for instant feedback on your assignments.
REFERENCES Books and Journals Awais, M. and et.al., 2016. Impact of financial literacy and investment experience on risk tolerance and investment decisions: Empirical evidence from Pakistan.International Journal of Economics and Financial Issues.6(1). Irshad, S., Badshah, W. and Hakam, U., 2016. Effect of representativeness bias on investment decision making.Management and Administrative Sciences Review.5(1). pp.26-30. Jackson, C. and Orr, A., 2019. Investment decision-making under economic policy uncertainty. Journal of Property Research.36(2). pp.153-185. Lei, Z., 2019. Research and analysis of deep learning algorithms for investment decision support model in electronic commerce.Electronic Commerce Research.pp.1-21. Online Net Present Value Method, 2020 [Online]. Available Through: <https://cleartax.in/s/npv-net-present-value>. 4