Financial Decision Making for DDK Plc in Textile Industry

This report discusses financial decision-making for DDK Plc in the textile industry, including calculating payback period and net present value for two projects. It also covers financial and non-monetary factors that should be considered for decision-making, such as interest rates, sources of funds, market trends, and employee acceptance.

DECISION MARKING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Calculating Payback Period (PP)................................................................................................1
Computation of Net Present Value ............................................................................................2
Explaining Financial and non momentary factors for decision-making ....................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Financial decision-making is one of the important area of business that is concerned with
making strategic decision for the purpose of allocating, utilizing and controlling monetary
resources. In the current era, it is crucial or the firm to be prompt in making organizational for
gaining competitive advantages. The present report is based on DDK Plc which operates in
textile industry. It will comprise calculation regarding NPV & pay back period so that
appropriate comparison for reaching significant decision will be discussed in report. Financial &
non monetary factors will be included in current case study.
MAIN BODY
Calculating Payback Period (PP)
Year
Project A – Belt
Project
Net cash flow £
Cumulative
cash inflows
Project B –
Trainers
Project
Net cash flow £
Cumulative cash
inflows
1 45000 45000 50000 50000
2 45000 90000 45000 95000
3 35000 125000 70000 165000
4 70000 195000 90000 255000
5 82000 277000 90000 345000
Initial
investment 170000 190000
Payback
Period
3+(170000-
125000)/70000
3+(190000-
165000)/90000
3+ 0.64 3+0.27
Payback
Period 3.64 year 3.07 year
From the above table it can be interpreted that project A & B will recover the initial
investment in 3.64 and 3.07 years respectively. On the basis of this it can be articulated that
organization should opt for project B as its recovering investment amount is less than A which
will be beneficial for DDK plc.
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Computation of Net Present Value
Year
Project A –
Belt Project
Net
cashflow £
PV factor
@ 14%
Discounted
cash
inflows
Project B –
Trainers
Project
Net cash
flow £
PV factor
@ 14%
Discounted
cash
inflows
1 45000
0.87719298
25
39473.6842
105263 50000
0.87719298
25
43859.6491
22807
2 45000
0.76946752
85
34626.0387
811634 45000
0.76946752
85
34626.0387
811634
3 35000
0.67497151
62
23624.0030
670706 70000
0.67497151
62
47248.0061
341411
4 70000
0.59208027
74
41445.6194
159133 90000
0.59208027
74
53287.2249
633171
5 82000
0.51936866
44
42588.2304
775049 90000
0.51936866
44
46743.1797
923834
Total
discounted
cash inflow
181757.575
952178
225764.098
793812
Initial
investment 170000 190000
NPV (Total
discounted
cash inflows
- initial
investment) 11757 35764
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In terms of net present value for project A & B is respectively 11757 and £35764. From
the comparison it can be analyzed that investment B has greater value as compared to A so
higher consideration while selection should be given to second project (Siziba and Hall, 2019.).
From the assessment it can be articulated that project B for the mentioned textile
company is suitable so it should be selected.
Explaining Financial and non momentary factors for decision-making
There are several aspects that need to be taken into consideration while formulating
business decision. From the financial perspective it can be analyzed that organization should pay
attention on having lesser pay back period & higher net present value so that significant decision
can be taken to get higher profitability can be attained (Jindřichovská and Kubíčková, 2020) .
Interest rate, return on capital, sources of funds, etc are included in monetary aspects that
required to be focused by DDK Plc. so that better approach for decision-making can be
considered. DDK Plc should be assured while making any project for capital appraisal
organization that it provides higher sustainability and productivity in manufacturing procedure.
Cost of capital associated with making the significant decision taken by organization higher
affects the processing of company (Sekścińska and Markiewicz, 2020). There is requirement in
present era to make essential evaluation regarding profit margins, maintenance cost, etc so in
turn end desirable financial position can be ascertained.
Organization along with financial aspects need to emphasize on non monetary
components for analyzing all areas that can influence success of firm (Shaban, Al-Zubi and
Abdallah, 2017). In order to be efficient in operational practices company need to focus on all
element that contribute in achieving organizational goals. DDK Plc as operating in textile
industry can conduct market analyzing for gathering data regarding political, economical, social,
technological and environmental factor. In addition to this, evaluating customer taste &
preference is one of the significant aspect that required to be highly considered so that obtaining
maximum level of clients satisfaction can be achieved (Lexutt, 2020). This helps in leading in
industry by adopting those pattern of providing that is capable of accomplishing objective of
customers so that loyal & committed clients to gain competitiveness can be attained
(Balasubramnian and Sargent, 2020). The another crucial factor that enterprise need to
concentrate is employee acceptance towards the decision formulated. Employees as being
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important resources of firm need to largely pay attention on the skills, knowledge, attributes, and
experience posses by them for executing selected course of action. Flexibility & adaptability is
contributes in analyzing how firm is capable in terms of implementing effectively so that
organization can attained desirable position in industry.
Market trend need to be conducted before reaching an end conclusion as it permits to
have information regarding the current advanced technological devices that are taken into
practice. This provides assistance in achieving data of prevailing trend so that capability to
coordinate with changing circumstances can be adopted (Non-Financial Factors in Capital
Investment Decisions, 2021). Organization's policies, structures, hierarchy, marketing &
promotional tactics, etc is as well included in non financial aspects which plays important role in
influencing success of company so giving focus on this becomes essential for firm. In order to
have smooth functioning company need to make proper evaluation of existing industrial
standards and legislation in turn ability to eliminate legal obligation can be attained (Bhujel,
2020.). It helps in having smooth procedure of company in turn better stability in industry can
be derived. Prevailing environmental laws & current standards in respect to have smooth
functioning of organization. On the basis of these it can be identified that enterprise require
focusing on such mentioned component while making business decision so that desirable
outcome can be achieved.
CONCLUSION
From the above report it can be concluded that financial decision-making is crucial in
having success. The current report has included the calculation regarding NPV & payback
period regarding mentioned project. From the evaluation it can be articulated that investing in
project B would be beneficial for the enterprise. In addition to this, current case study has
included financial & non monetary factors that required to include while formulating decision.
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REFERENCES
Books and Journals
Balasubramnian, B. and Sargent, C. S., 2020. Impact of inflated perceptions of financial literacy
on financial decision making. Journal of Economic Psychology. 80. p.102306.
Bhujel, S., 2020. Role of Financial Statement in Investment Decision Making Process. Journal of
Balkumari College. 9(1). pp.105-108.
Jindřichovská, I. and Kubíčková, D., 2020. The Influence of Culture and Institutional
Environment on Financial Decision-Making. Accounting and Management
Information Systems AMIS 2020. p.92.
Lexutt, E., 2020. Different roads to servitization success–A configurational analysis of financial
and non-financial service performance. Industrial marketing management. 84.
pp.105-125.
Sekścińska, K. and Markiewicz, Ł., 2020. Financial decision making and individual dispositions.
In Psychological perspectives on financial decision making (pp. 135-166).
Springer, Cham.
Shaban, O. S., Al-Zubi, Z. and Abdallah, A. A., 2017. The extent of using capital budgeting
techniques in evaluating manager’s investments projects decisions (a case study on
Jordanian industrial companies). International Journal of Economics and Finance. 9(12).
pp.175-179.
Siziba, S. and Hall, J. H., 2019. The evolution of the application of capital budgeting techniques
in enterprises. Global Finance Journal. p.100504.
Online
Non-Financial Factors in Capital Investment Decisions. 2021. [Online]. Available through:
<https://ohiostate.pressbooks.pub/drivechange/chapter/chapter-1/>.
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