Business Decision Making

BUSINESS DECISION
MAKING
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Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
1. Calculation of payback period in project A & B:...............................................................3
2. Calculation of NPV:...........................................................................................................4
3. Analysis:.............................................................................................................................5
4. Practical implications:........................................................................................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8
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INTRODUCTION
It is essential for companies to take crucial decisions regards to investment so that higher return
can be achieved. In order to do effective analysis of financial projects, there are different types of
techniques such as net present value, internal rate of return and many more (WEBSTER, 2014).
The project report is based on ABC plc that is a computer software company and they are
planning to invest in two new projects. In the report, both projects have been analysed by help of
different techniques and critical analysis of these techniques is also done.
MAIN BODY
1. Calculation of payback period in project A & B:
For project A:
Year Cash flow Cumulative cash flow
0 (40000) -
1 8000 8000
2 12000 20000
3 16000 36000
4 20000 56000
5 30000 86000
Payback period= 3+4000/20000*12 months
= 3 years + 2.4 months
So cost of this project’s cost will be recovered in 3 years and 2 months
For project B:
Year Cash flow Cumulative cash flow
0 (60000) -
1 10000 10000
2 20000 30000
3 25000 55000
4 30000 85000
5 40000 125000
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