Business Decision Making

This report discusses the use of investment appraisal tools and techniques for assessing the viability of investment projects. It explores the case scenario of ABC, a software trading company, and provides insights into capital budgeting tools. The report also evaluates the profitability and payback period of two investment options and recommends the selection of the hardware project. It emphasizes the consideration of both financial and non-financial factors in decision making.

Business Decision Making

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
Assessing viability of project using investment appraisal tools & techniques......................3
CONCLUSION..........................................................................................................................7
REFERENCES...........................................................................................................................8

INTRODUCTION
In the recent times, with the motive to attain success and meeting organizational goals
managers lay emphasis on taking appropriate decisions. Now, several tools are available
which business unit can undertake for analyzing and appraising investment projects or
proposal. The present report is based on the case scenario of ABC which involved in the
trading of computer software. In this, report will provide deeper insight about capital
budgeting tools & techniques. It will shed light on how capital budgeting tools can be
employed for the selection of investment project.
Assessing viability of project using investment appraisal tools & techniques
Investment appraisal tools include collection of techniques which is used by the firm
for analyzing and identifying attractiveness of an event. It mainly includes net present value,
payback period, average and internal rate of return method (Sinha and Datta, 2020).
Payback method highlights or presents time period within which amount invested
initially will be recovered (Kengatharan and Prashanth Diluxshan, 2017). However, this
method does not present profitability that will be attained after payback period.
Net present value method presents return which firm will generate after specific time
period. This method is highly effectual for the purpose of decision making as it considers
time value of money concept while evaluating options.
The cited case situation presents that, ABC plc has two investment options project A
& B for business expansion. Now, manager is facing problem in relation to the selection of
best project out of two Motor software and hardware project. Both the projects have different
initial investments £40000 &£60000 respectively. In this regard, capital budgeting tools are
highly significant which helps in assessing project that company should select for investment
purpose.
Computation of NPV
Project A: Motor Software Project
Year
Cash inflow of
project A (in £)
PV factor @
12%
Discounted cash inflow
(in £)

1 8000 0.893 7143
2 12000 0.797 9566
3 16000 0.712 11388
4 20000 0.636 12710
5 30000 0.567 17023
Total discounted cash
inflow 57831
Less: initial investment 40000
NPV 17831
Project B: Hardware project
Year
Cash inflows
(in £)
PV factor @
12%
Present value of cash flows
(in £)
1 10000 0.893 8929
2 20000 0.797 15944
3 25000 0.712 17795
4 30000 0.636 19066
5 40000 0.567 22697
Sum of discounted cash
flows 84430
Less: initial investment 60000
NPV 24430
Calculation of payback period
Project A
Year
Cash inflow of project A
(in £) Cumulative cash inflow (in £)
1 8000 8000
2 12000 20000
3 16000 36000
4 20000 56000
5 30000 86000
Payback period: 3 + 4000 / 20000

= 3 + .2
= 3.2 years or 3 years and 2 months
Project B
Year Cash inflow (in £) Cumulative cash inflow (in £)
1 10000 10000
2 20000 30000
3 25000 55000
4 30000 85000
5 40000 125000
Payback period: 3 + 5000 / 30000
= 3 + .2
= 3.2 years or 3 years and 2 months
Interpretation: The above depicted evaluation presents that payback period of project
A & B is similar such as 3.2 years. In accordance with this, ABC Plc will recoup initial
investment within the period of 3 years and 2 months. Hence, after this period, ABC Plc
would become able to earn profit margin. As per the selection criteria, business unit should
choose or select project which has lower payback period.
By applying investment appraisal tools on data set it has assessed that ABC Plc
should invest money in project B. Moreover, return which business organization will get after
the period of 5 years, in the case of Motor software project, accounts for £17831 respectively.
On the other side, as per capital budgeting method, after deducting initial investment from
discounted cash flows, in project B, implies for £24430 significantly. According to the
method, company should give preference to the project having higher net present value. Thus,
it can be stated that ABC Plc should invest money in the business of Hardware project which
in turn contributes in both profit maximization and growth.
With regards to the evaluation of investment option, business entity should consider
both monetary and non-monetary factors. There are several financial and non-financial
factors which in turn aid in decision making aspects to the significant level. It includes
following aspects:

Financial factors
 At the time of project assessment, manager should consider profitability that
associated with investment option. Moreover, attainment and maximization of
profitability is the main motive of business unit.
 Further, manager should focus on the evaluation of time where company will be on
the situation of no profit no loss. Moreover, once initial investment recovered then
business unit starts to get profit margin.
 Return in terms of % is also evaluated by the manager while making evaluation of
investment proposal. On the basis of this aspect, company should employ funds in the
option that has high IRR.
Non-financial factors
 Availability of skilled personnel: In order to deal with software and hardware projects
business organization requires team of competent personnel. Without having skilled
and proficient workforce ABC Plc would not become able to fulfill organizational
goals.
 Further, ABC Plc should also make evaluation of risks that associated with project.
Manager should focus on assessing whether all the resources material, labor etc are
available enough or not. By taking into account this, ABC plc can develop mitigation
plan and thereby ensures success.
In the context of investment options evaluation, pertaining to both Motor software and
hardware project, ABC Plc considered several aspects. It includes profitability, period of
initial investment recovery, availability of skilled personnel, uniqueness etc. Referring
evaluation of all such factors ABC plc took decision regarding investment in Hardware
project.
CONCLUSION
By summing up this report, it can be concluded that investment appraisal techniques
provide assistance in the selection of best option out of several alternatives available. It can
be seen in the report that hardware project proves to be more beneficial for ABC Plc. Besides

this, it can be inferred that company should consider both financial and non-financial factors
while taking business decisions. Further, it has been articulated that NPV offers appropriate
solution as it considers time value of decision making.

REFERENCES
Books and Journals
Kengatharan, L. and Prashanth Diluxshan, C., 2017. Use of Capital Investment Appraisal
Practices and Effectiveness of Investment Decisions: A Study on Listed Manufacturing
Companies in Sri Lanka. Asian Journal of Finance & Accounting. 9(2). pp.287-306.
Sinha, R. and Datta, M., 2020. Investment Appraisal of Sustainability Projects: An
Assortment of Financial Measures. In Social, Economic, and Environmental Impacts
Between Sustainable Financial Systems and Financial Markets (pp. 43-56). IGI Global.