Business Decision Making

Business Decision Making

INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
1. Payback period.........................................................................................................................1
2. Net Present Value (NPV).........................................................................................................2
3. Financial and Non- Financial Factors......................................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUCTION
Business decision making is the process that helps managers to assess the effectiveness of
any project, whether or not this will be beneficial to the organization in the potential (Bennun
And et.al., 2018). Throughout this study, A&B plc seems to have two separate projects they'll
spend on improving their performance, or system effectiveness. This assessment covers the
prediction of the NPV or Payback period and analyzes the financial and non - financial
components that enhance all the process of making decisions.
MAIN BODY
1. Payback period
It is amongst the most efficient forms of capital budgeting that entities use to analyse
different proposed ideas on their recovery period (Creemers, 2018). The whole method helps to
very quickly measure which project will recover its initial investment sooner and them managers
have to make their investment decisions accordingly. The lower the payback date is
advantageous and the greater one is refused, so A&B plc managers are using this method to
determine the right choices and the equation refer to below alongside their formula.
Formula:
Payback Period = Year before full recovery + unrecoverable cost / cash flow during the year
Year Project A Cumulative Cash flow Project B Cumulative cash flow
Year 0 -120,000 - -150,000 -
Year 1 £30,000 £30,000 £40,000 £40,000
Year 2 £35,000 £65,000 £45,000 £85,000
Year 3 £40,000 £105,000 £50,000 £135,000
Year 4 £60,000 £165,000 £75,000 £210,000
Year 5 £90,000 £255,000 £80,000 £290,000
Calculation:
Project A = 3 + £15,000 / £60,000
= 3 + 0.25
= 3.25 years
Project B = 3 + £15,000 / £75,000
= 3 + 0.2
1