Factors Impacting Decision Making: Investment Appraisal Techniques for Akwaaba Plc

This essay discusses the investment appraisal techniques used by Akwaaba Plc to measure future profitability and success of their products. It analyzes the financial and non-financial factors that impact decision-making processes, such as inflection rates, interest rates, social impact, and opportunity cost. The essay concludes that project B, which deals with shoes, is a more profitable investment than project A, which deals with bags.

Essay 1000 words
This is first page
Cover page
A essay on
Factors impacting decision making
Table of content
Contents
Cover page.........................................................................................................................................1
Table of content................................................................................................................................1
Introduction...........................................................................................................................................2
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What is Payback period.........................................................................................................................3
Payback period for Project A.............................................................................................................3
Payback period for project B.............................................................................................................3
Net Present Value (NPV)....................................................................................................................4
Project A............................................................................................................................................4
Project B............................................................................................................................................5
Analysis..............................................................................................................................................5
Financial Factors Which impact investment..........................................................................................5
Non financial factors which impact investment.................................................................................6
Social impact..................................................................................................................................6
Opportunity cost...............................................................................................................................6
Conclusion.........................................................................................................................................6
Reference List....................................................................................................................................7
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Introduction
As per below report, some decision is made on the basis of analysing the performance. Akwaaba Plc
is a textile company which mainly operational in United Kingdom and other European countries.
Akwaaba Plc deals in Bags and shoes but it have been outsourced due to a lack of available
resources. Company has to select one product form the bag and shoes. In this report future
Profitability and success of both the product is measured with the help of investment appraisal
techniques and determine financial and non financial factor which effect decision making process.
What is Payback period
Before making a investment in a particular project, Company has to analyse project goodwill and its
future performance in the market. Company's generally apply some techniques to analyse future
investment returns and profitability of a particular project. Here Akwaaba Plc also using payback
period method to measure returns on both investments. Payback period refers to the time required
to recover the cost which incurred in an investment (Boddapati, Nandikatti and Daniel, 2021). It
plays a very important role in decision making process. This method applied here to compute future
returns of bath the investment. The calculation of payback period is as follows:
Payback period for Project A
Year Project A – Bags
Net cashflow £
Cash flow Cumulative cash flows
0 -180000 0
1 48,000 48000
2 62,000 110000
3 85,000
4 1,00,000
5 1,10,000
Payback period of project A = Years Before Break-Even + (Uncovered Amount / Cash Flow in
Recovery Year)
= 2 years + (70000 / 85000)
= 2 + 0.82
= 2.82 years
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Payback period for project B
Year Project B –Shoes
Net cashflow £
Cash flow Cumulative cash flow
0 -170000 0
1 45,000 45000
2 65,000 110000
3 82,000
4 98,000
5 1,10,000
Payback period of project A = Years Before Break-Even + (Uncovered Amount / Cash Flow in
Recovery Year)
= 2 years + (60000 / 82000)
= 2 + 0.731
= 2.73 years
Net Present Value (NPV)
Net present value refers to the difference between total cash inflows and outflows over the life of an
investment. It helps in examine profitability of a project (Paige, Billings and Mathur, 2021).
Project A
Project A – Bags
Net cashflow £
Year Cash Flows PV Factor @ 14% Present Value
1 48,000 0.877 42096
2 62,000 0.769 47678
3 85,000 0.675 57375
4 1,00,000 0.592 59200
5 1,10,000 0.519 57090
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Present value of Cash Inflow 263439
Net Present Value = Present value of cash inflow – Initial Cash investment
= 263439 – 180000
= 83439
Project B
Project B –Shoes
Net cashflow £
Year Cash Flows PV Factor @ 14% Present Value
1 45,000 0.877 39465
2 65,000 0.769 49985
3 82,000 0.675 55350
4 98,000 0.592 58016
5 1,10,000 0.519 57090
Present value of Cash Inflow 259906
Net Present Value = Present value of cash inflow – Initial Cash investment
= 259906 – 170000
= 89906
Analysis
As per above computation, Future performance of both the project is analysed by the help of
investment appraisal techniques. To know the best possible investment for future profitability,
payback period and net present value methods are calculated. Both the methods make decision
making process very easy. These method helps Akwaaba Plc in decision making to opt one project
from project of bags and project of shoes. The payback period of both the projects are
approximately same but investment of project A is more than project B which means project of
shoes is more reliable the project of bags. Net present value of the project A 83439 is less then
project b 89906 which means project B having more value than A. Higher net present value tells
Good performance of the projects. According to both the method it is analysed that project B is
more profitable for the Akwaaba Plc. Company has to make decision to opt project B which is
Business of shoes. It also states that investment appraisal techniques play important role in decision
making process.
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Financial Factors Which impact investment
Inflection rate: it refers to the continuous increase in the price of a commodity which reduce s the
ability to spend and save of an individual (Saweris and et.al., 2019). It will decrease the profits of a
firm which resulting as shortage of funds for investment and expansion of the business. Inflection
increase the interest rate which affect the short term position of the company.
Interest rates: Interest rate refers to the amount charged by the lender from borrower to get access
to capital. Higher interest rate impacts the investment decisions. It will increase the cost of
investment and it create difficulties in taking loans. It will take investment a lot longer to pay off
debts.
Importance of financial factors:
 It helps in controlling cost and expenses which inured in the project.
 It helps in producing better quality of products without wasting of resources.
 It helps in analysing financial performance of the company and also improve brand value and
reputation.
 It helps in achieving goals in shorter timeline.
Non financial factors which impact investment
Social impact
In the economy people are socially creators which create an impact on the investment decisions
basically it also influence those actions which are nearly comes to an handling and investing their
money (Wang, Guan and Liu, 2021). But Akwaaba plc use method of leveraging and these tendencies
helps the targeted market in respect of the goods and services. There are some factors which
influence the investment decision namely cultural attitudes and market experience.
Opportunity cost
This type of cost indicates the potential advantage that a person, investor or company misses out
while selecting one alternative over another. It plays a very crucial role in identifying the Akwaaba
plc capital structure. A business occur expenditure in issuing both liability and equity capital to
compensate creditors and shareholders for the risk of investment, still each also contains an
opportunity cost.
Conclusion
In the above report, it can be concluded that the investment appraisal techniques play
important role in decision making. Payback period is calculated to measure time to recoup
investment cost. Payback period of project A for bag is 2.82 year while project B for shoes is 2.73
years with the investment of 180000 and 170000 respectively. It states that project B is able to meet
break-even point more efficiently then the project A. Net present value of both the project is
computed where NPV of project A is 83439 and project B is 89906. It is recommanded that Project of
shoes is more profitable investment than the project A. Some of factors are also analysed which
effect decision-making.
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Reference List
Boddapati, V., Nandikatti, A.S.R. and Daniel, S.A., 2021. Techno-economic performance assessment
and the effect of power evacuation curtailment of a 50 MWp grid-interactive solar power
park. Energy for Sustainable Development, 62, pp.16-28.
Mundi, H.S., Kaur, P. and Murty, R.L.N., 2021. A qualitative inquiry into the capital structure
decisions of overconfident finance managers of family-owned businesses in
India. Qualitative Research in Financial Markets.
Paige, J.S., Billings, G. and Mathur, S., 2021. Historical Net Discount Rates-An Update through
2019. J. Legal Econ., 27, p.79.
Saweris, S. and et.al., 2019. The Impact of Neurotransmitters, Emotional Intelligence and Personality
on Individual Investors’ Investment Decisions: An Empirical Comparative Study. Emotional
Intelligence and Personality on Individual Investors’ Investment Decisions: An Empirical
Comparative Study.
Wang, Q., Guan, L. and Liu, L., 2021, July. Integrated Channel and Pricing Decisions Making
Online/Offline Choices. In The 2021 12th International Conference on E-business.
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