Essay on Business Decision Making

Essay on Business Decision Making

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
1. Calculation of payback period............................................................................................3
2. Calculation of Net Present Value (NPV)............................................................................4
3. Analysis..............................................................................................................................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Decision making leads to making decisions from alternate possible outcomes and it
including inaction as well. Groups of people around organisations use the knowledge they
obtain to make a broad variety of decisions (Baker, 2018). Such decisions will influence others'
futures and modify an organization's path. In this assessment, XYZ Plc decided to invest into
project and have two different options such as new software as Project A and laundrette as
Project B. Senior management of the organization made decisions with the help of investment
appraisal techniques such as of NPV and Payback period. This report also covers the advantages
and disadvantages of these methods.
MAIN BODY
1. Calculation of payback period
Year Project A Cumulative
cash flow
Project B Cumulativ
e cash flow
0 £ 100000 - £ 120000 -
1 £ 28000 £ 28000 £ 31000 £ 31000
2 £ 32000 £ 60000 £ 38000 £ 69000
3 £ 35000 £ 95000 £ 43000 £ 112000
4 £ 55000 £ 150000 £ 64000 £ 176000
5 £ 78000 £ 228000 £ 89000 £ 265000
Formula:
Payback period: Full recovery year + unrecoverable cost / cash flow during the year
Project A = 3 + £ 5,000 / £ 55,000
= 3 + 0.90
= 3.90 year
Project B = 4 + £ 56,000 / £ 64,000
= 4 +0.87
= 4.87