Business Decision Making

BUSINESS DECISION
MAKING
Contents
1

Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
Computation of payback period...................................................................................................3
Computation of Net Present Value..............................................................................................3
Financial factor............................................................................................................................3
Non financial factors....................................................................................................................3
CONCLUSION................................................................................................................................3
REFRENCES...................................................................................................................................3
2

INTRODUCTION
Business decision making is a process which help companies to determine best alternative
project for their future expansion. In order to understand the concept clearly XYZ plc had
been taken, it is situated in UK and part of hotel chain . This reports includes how manager
use capital budgeting technique to evaluate whether their decision regarding investing in
software and laundrette is correct or not. This report also define how financial and non
financial factors effect business decision making process .
TASK 1
Computation of payback period
About payback period: It can be refers as time period required for business organizations to
recover their initial cost incurred on respective project. In other words payback period is the time
takes for the cash flows of revenue from particular project to equal the initial investment . It is a
technical of capital budgeting which is used when managers need to decide the best alternative
within a short period of time (Panepinto and et.al.2016). Payback period is one of the most
popular budgeting techniques as it provides quick solutions and preferred liquidity however this
method does not consider the value of time money and ignore realistic profitability. Managers
accept those alternatives which take less time to recover the money then compare to others.
Higher pay back period represent lower benefits and profitability ate for business organizations.
Payback period for Project A (Software Project)
Year Cash inflow in £ Cumulative cash inflow
1 28,000 28000
2 32,000 60000
3 35000 95000
4 55000 150000
5 78000 228000
Formula of payback period= Base year +Initial investment- Cumulative cash inflow of base
year / Upcoming year cash inflow
3+100000-95000/55000= 3.90
Payback period for project B (Laundrette Project)
3