Business Decision Making: Payback Period and NPV Analysis

MODULE NAME: BUSINESS DECISION MAKING

Table of Contents
INTRODUCTION...........................................................................................................................2
TASK...............................................................................................................................................2
Payback period:..........................................................................................................................2
Net present value (NPV).............................................................................................................2
Interpretation and analysis...............................................................................................................2
CONCLUSION................................................................................................................................2
REFERENCES................................................................................................................................2

INTRODUCTION
A decision-making process is characterized as primarily an established schedule deliberately
produced from such a range of alternatives to achieve company or organisational objectives and
goals. Decision making is an on-going and necessary aspect of every company or corporation's
administration. Therefore decisions, are made to benefit both the activities of the organization
and the operation of the organization. The decision-making mechanism has been seen, as
equilibrium of control that keeps the business from rising diagonally and linearly. It basically
means that the decision-making process searches for a goal. The objectives are pre-set strategic
priorities, operational objectives and the vision. To achieve these goals, business will face
multiple problems in strategic, financial, communications and organizational situation so
effective and smart decision help to reach a better outcome.
The task presented is based on which Project A (Dishwashing) or Project B (Software
Development) strategic analysis to pick the best for company. Decision making shall take into
consideration financial and non - economic aspects. The estimation of payback time and NPV is
helpful in making decisions.
TASK
Payback period:
The payback period calculates how much an equity fund has to be repaid in order to repay or
regain the costs expended on a given project. The length of the payback, to put it plainly, is the
amount of time that an investment reaches a break-even point. The acceptability of a project is
deeply linked to its payback date. Higher paybacks indicate a much higher and more desirable
return on investment (Zativita and Chumaidiyah, 2019). The necessity for time to pay up
decision is the minimum year additional expense that is growing better for the firm in the
specific period.
Payback period of Project A= £120,000 – 14%
Year Project A Cumulative
cash inflows
0 -£120,000 -£120,000
1 £30,000 -£90,000
2 £35,000 -£55,000
3 £40,000 -£15,000
4 £60,000 £45,000