Importance of Decision Making for Business 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.............................................................................................4
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

ESSAY TOPIC
“Importance of decision making for the business taking help of NPV method as well as
payback period method in addition with various financial and non-financial factors”
INTRODUCTION
Business decision making is an activity in which top authority of an organisation are
involved with the purpose of achieving desired goals and objectives within pre-determined time
frame (Anderson and Burchell, 2019). In such process, managers mainly emphasis on financial
as well as non-financial factors that can impacts the profitability and productivity of an
organisation. The present essay discusses the importance of these factors during decision making
process. In addition with this, the essay also explains the investment appraisal techniques which
includes net present value and payback period method.
ESSAY BODY
XYZ Plc is small and medium sized organisation which deals in providing hospitality
services to the people of United Kingdom. Such hotel outsourced their different services which
includes laundrette and hotel software technique due to not having adequate amount of funds to
undertake on their own (Gorshkov, Murgul and Oliynyk, 2016). To achieve growth and
expansion, the managers of XYZ Plc decided to invest in either of these outsourced hotel
services. For this, it is important for the management to consider and analyse both the proposals
with using method of NPV and Payback method. In this context, the initial investment the
company going to make to undertake software is £100,000 whereas investment made for
undertaking Laundrette is £120,000 on return rate of 11%.
Net present value with its benefits and drawbacks
Net Present value is considered as an effective method which is used to compared cash
inflow with cash outflow over a particular period of time, It is most useful in making planning
regarding capital budgeting and investment planning so as expect the profit after the completion
of project. The advantage of using such method received by an organisation is that it makes easy
for management to identify the opportunity cost of the alternate project. On the other hand, it
has a disadvantage too such as it needed professional knowledge and most useful for
organisations operated at large scale (Hopkinson, 2017).
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