Business Decision Making: NPV, Payback Period, and Factors

Business decision
making

Table of Contents
Introduction-....................................................................................................................................3
Calculation of NPV and Payback period-........................................................................................3
Payback period-.......................................................................................................................................3
Net present value-....................................................................................................................................4
Financial and Non-financial Factors-..............................................................................................5
Conclusion-......................................................................................................................................6
References-......................................................................................................................................7

Introduction-
In this report, Business decision making is discussed. Decision making in finance depends on various
financial and non-financial factors. In this report, DDK Textile Company is analyzed. Company has two
project options. On the basis of net present value, payback period and other non-financial factors these
projects are analyzed. Decision making for a business is very important. It means choosing the best option
among several alternatives. In the finance domain, capital budgeting methods are the best measure in
decision making. Capital budgeting methods include net present value, internal rate of return, payback
period and discounted cash flow.
Calculation of NPV and Payback period-
Payback period-
Payback period of Project A
Years Cash Flow(in £)
Cumulative Cash
Flow
0 -170000 -170000
1 45,000 -125,000
2 45,000 -80,000
3 35,000 -45,000
4 70,000 25,000
5 82,000 107,000
Payback Period 3.64 Years
Payback period of Project B
Years Cash Flow(in £)
Cumulative Cash
Flow
-190000 -190000
1 50,000 -140,000
2 45,000 -95,000
3 70,000 -25,000
4 90,000 65,000
5 90,000 155,000
Payback Period 3.27 Years