Investment Appraisal Techniques for Decision Making: A Case Study of Akwaaba Plc

This report analyses the future profitability and success of two products of Akwaaba Plc, using investment appraisal techniques. It also determines the financial and non-financial factors that affect the decision-making process.

Business Decision
Making

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
Computation of payback period of Akwaaba Plc:..................................................................3
Calculation for Akwaaba Plc Net Present Value....................................................................4
Evaluation of computed results and Making final decision:..................................................5
Determine financial and Non-financial factors used to aid decision making.........................5
CONCLUSION ...............................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
As per below report, Some decision are 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.
MAIN BODY
Computation of payback period of Akwaaba Plc:
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:
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
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
Calculation for Akwaaba Plc Net Present Value
Net present value refers to the difference between total cash inflows and outflows over the life of
an investment. It help in examine profitability of a project (Paige, Billings and Mathur, 2021).
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
Present value of Cash Inflow 263439
Net Present Value = Present value of cash inflow – Initial Cash investment
= 263439 – 180000
= 83439

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
Evaluation of computed results and Making final decision:
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 plays important role in
decision making process.
Determine financial and Non-financial factors used to aid decision making
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 a 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 impact 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 help 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 help in achieving goals in shorter timeline.
Non-Financial factors which impact investment:
Social impact on investment: 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. 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
(Wang, Guan and Liu, 2021)..
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.
Importance of non financial factors:
 It helps to improve reputation of the business by strengthening management system.
 It create proper co-ordination between suppliers and customers.
 It provide strength to the company to deal with future uncertainties and risks.
 It help in improving performance of employee by motivating them (JulyMundi, Kaur
and Murty, 2021).

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.

REFERENCES
Books and Journals
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,
Management and Economics (pp. 650-654).