Business Decision Making: Payback Period and NPV Calculation

Essay on Business
Decision Making

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Calculation of payback period for XYZ plc projects..................................................................1
Calculation of NPV for XYZ projects........................................................................................2
Final decision..............................................................................................................................3
Financial factors..........................................................................................................................4
Non financial factors...................................................................................................................4
CONCLUSION ...............................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
The decision making procedure consisting of identifying a goal, collecting relevant
information and weighting the alternatives in order to make a decision. The business decision
making procedure is a step by step procedure in which allowing all the occupational group to sort
out problems and select a particular way (He, Wang and Akula, 2017). This procedure provides
opportunity to improve their skills. This report based on the XYZ plc is a budget hotel chain
which is trading in UK and some parts of the Europe. In this report consist of two projects,
Software project and Laundrette project. There are covering payback period, net present value,
financial and non financial factors that impact on decision making procedure.
TASK 1
Calculation of payback period for XYZ plc projects
Pay back period: It is capital budgeting technique which is applied by business when
require to take decision from two and more projects. The term is mainly used by the business for
the investment purpose and use into different areas such as, technologies, maintenance, upgrades
and other changes. It is amount of requirement of cash inflow generated through a project to
offset its initial cash outflow.
Software Project A
Year Cash inflow in £ (000) Cumulative cash inflow
(000)
1 28 28
2 32 60
3 35 95
4 55 150
5 78 228
Formula of payback period: = Base year + primary outlay - collective cash inflow of base year /
future year cash inflow
3 + 100000 – 95000 / 55000 = 3.09 year
Laundrette Project
Year Cash inflow in £ (000) Cumulative cash inflow
1