Business Decision Making

Business Decision
Making
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Table of Contents
Introduction......................................................................................................................................3
Investment........................................................................................................................................3
appraisal techniques........................................................................................................................3
Payback period:- ....................................................................................................................3
Accounting rate of return:- ....................................................................................................4
Net present Value :-................................................................................................................5
Internal rate of return (IRR) :- ...............................................................................................6
Analysis report of accounting techniques...............................................................................6
Decision analysis of accounting techniques:-.........................................................................7
Analysis of Tesco Plc. ....................................................................................................................8
Evaluation of the financial structure of Tesco plc..................................................................8
for the year 2017 – 2019........................................................................................................8
Limitation of accounting ratio:-..............................................................................................9
Factor affecting Tesco Plc:-....................................................................................................9
Conclusion ......................................................................................................................................9
References......................................................................................................................................10
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Introduction
This report talks about decision making which means making the best choice among all
other option. In this report company considered is Wonderland Plc. Initially it talks about
replacement of old machine with new one. The purchase of machines base the four type of
investment technique like pay back period, accounting rate of return, net present value and
internal rate of return. The it discuss about the position the company with comparison to its
financial details and talks about the limitation holds by the accounting ratio. In the end it talks
about the movement of share price with respect to market condition.
Investment
appraisal techniques
Payback period:-
Pay back period talks about the period or times in which the cost have been recovered
which was previously expenditure on it. Its calculation works like the shorter the pay back period
is the better will be the project (Chen and et. al., 2020).
Pay back period for Duke
Cost Duke
( Initial outlay
– cash inflow)
Cash Inflow 250000 -2,50,000.00
Year1 120000 -130000
2 50000 -80000
3 50000 -30000
4 25000 -5000
5 60000 55000
6 50000 105000
Scrap Value 10000
Payback period = Years before full recovery + Unrecoverable cost at the start of the year / Cash
flow during the year
Payback period = 4 + ( 5000) / 60000
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= 42 + 0.83
= 4 + 0.83
= 4 year + ( 0.83 * 12) month
Pay back period for Duke is 4 year 1 month.
Cost Earl ( Initial outlay – cash inflow)
Cash Inflow 400000 -4,00,000.00
Year1 60000 -340000
2 100000 -240000
3 125000 -115000
4 50000 -65000
5 50000 -15000
6 120000 105000
Scrap Value 40000
Payback period = Years before full recovery + Unrecoverable cost at the start of the year / Cash
flow during the year
Payback period = 5 + ( 15000) / 120000
= 5 + 0.125
= 5 year + ( 0.125 * 12) month
Pay back period for Duke is 5 year 1 month 15 days.
Accounting rate of return:-
Accounting rate of return is the profit from an investment over a period of time.
Accounting rate of return is also known as average rate of return. In this new profit is investment
(Tingey-Holyoak and et. al., 2020).
Formula for Accounting rate of return:-
Net profit = Initial outlay – cash inflow
=120000 + 50000 + 50000 + 25000 + 60000 + 50000 + 10000 ( Scrap Value) -
250000
= 365000 - 250000
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