Business Decision Making

This report explores the process of decision making in business, specifically focusing on the case study of Genesis & Dreams Ltd. It discusses the computation of payback period and net present value for different projects, and analyzes the financial and non-financial factors that influence decision making. The report concludes with a recommendation for the best investment option for Genesis & Dreams Ltd.

Business Decision Making

Table of Contents
INTRODUCTION ..........................................................................................................................1
MAIN BODY...................................................................................................................................1
Computation of payback period for Genesis & Dreams Ltd.......................................................1
Computation of net present value for Genesis & Dreams Ltd.....................................................2
Final decision...............................................................................................................................3
Financial factors...........................................................................................................................4
Non financial factors....................................................................................................................4
CONCLUSION...............................................................................................................................5
REFERENECES..............................................................................................................................5

INTRODUCTION
Decision making is essential process for running corporations in effective way. It is
systematic process through which manager take best decision by using different tools of
financial management. To understand the concept of decision making , Genesis & Dreams
Ltd has been taken, this entity is situated in UK, and proved construction service to their
client. This report is prepared to solve the problem of Genesis & Dreams Ltd to take decision
by using capital budgeting technique. . In this report use effect of financial and non financial
factor while taking decision is also define in systematic manner.
MAIN BODY
Computation of payback period for Genesis & Dreams Ltd
Pay back period: This term refers to the time an alternative take to recover its initial
cost. In other words, total duration required by project to attain the break even point is define
as break even point. Higher pay back period show low recovery rate and vice versa. Thus
managers decide those alternative which required lower time period to fulfill its initial
investment cost (Selyutina, 2018).
Payback period= Lower year+ Unrecoverable cost at the start of the year/Cash flow during
the year.
Tab1; Payback Period of Project A
Years Net Cash inflow Cash inflow(Cumulative)
0 (£70,000)
1 £18,000 18,000
2 £16,000 34,000
3 £19,000 53,000
4 £22,000
5 £37,000
For motor project
3years+(70,000-53,000/22,000) x12months

3years +(17,000/22,000) x12months
3years +0.7727 x12months
3years 9.27months
Tab2; Payback Period of Project B
Years Net Cash Flow Cash Flow (Cumulative)
0 (£84,000)
1 £21,000 21,000
2 £27,000 48,000
3 £30,000 78,000
4 £32,000
5 £32,000
For software project
3years+(84,000-78,000/32,00) x12months
3years+(6,000/32,000) x12months
3years +0.1875 x12months
3years 2.25months
Interpretation: To cover up cost invested in motor project Genesis & Dreams Ltd require 3
77 years and on the other side, by investing in software project, it takes 3.18 years to cover up
84000 (Gorshkov, 2018).
Computation of net present value for Genesis & Dreams Ltd
Net present value: Financial manger use net present value to define the present value of cash
inflows and capacity of organization to attain more then invested value. Net present value as
the name suggested is the difference between initial invest and total present value of cash
initial in given time period. Business organization chose those alternative on the basis of high
rate generated by business projects.
NPV of Project A

Years 14% Expected Rate Inflow of Cash Inflow of Cash
(Present Value)
0 1.000 £(70,000) £(70,000)
1 0.877 £18,000 £15.786
2 0.769 £16,000 £12,304
3 0.675 £19,000 £12,825
4 0.592 £22,000 £13,024
5 0.519 £37,000 £19,203
Table 3: Project A’s NPV Calculation
NPV of the project
=Total inflow of cash at present value-Initial investment
=15,786+12,304+12,825+13,024+19,203-70,000
=73,142-70,000
=£3,142
NPV of Project B
Years 14% Expected Rate Inflow of Cash Inflow of Cash
(Present Value)
0 1.000 £(84,000) £(84,000)
1 0.877 £21,000 £18,417
2 0.769 £27,000 £20,763
3 0.675 £30,000 £20,25
4 0.592 £32,000 £18,944
5 0.519 £32,000 £16,608
Table 4: Project B’s NPV Calculation
NPV of the project
=Total inflow of cash at present value-Initial investment
=18,417+20,763+20,25+18,944+16,608-84,000
=94,982-84,000
=£10,982

Details Initial Investment NPV Payback Period
Project A £70,000 £3,142 9.27months
Project B £84,000 £10,982 2.25months
Table5: Summary of results
Interpretation: Both project generate high rate of cash inflows and their present value is also
helpful in gear high profits. As comparison project B is much more profitable then project A
(Leyman, and Vanhoucke, 2016).
Final decision
Benefits of pay back period
 Calculation of profitability is easy by applying this method.
 It is time saving method of capital budgeting.
Drawbacks of payback period
 This method is not useful for multinational organizations.
 Manager face lack of accuracy issue by using pay back period.
Benefits of NPV
 This is one of the most reliable method of capital budgeting (
 It gives accurate result by considering time element in calculation.
Drawbacks of NPV
 Skilled employee required to use this method.
 Net present value is complex and time consuming method.
Financial factors
Factors which directly influence cash flow of organization in favourable and non favourable
way are considered as financial factors.
Income: Revenue generated by organization for trading by running business activities. A
company only survey when their income is high as compare to their expenses.
Inflation rate: This term define as rate at which value of products has been increase due to
increment in prices. At the stage of inflation purchasing value of money has been decline. It
is directly impact flow of monetary resource of organization.

Tax rate: Higher tax rate show higher rate of money outflow. Thus imposing higher tax
liability will result in decrement in financial capital.
Interest rate: Rate at which organization able to take loan from financial institutions. It is
directly impact on capacity of Genesis & Dreams Ltd taken loan (Chuang andet.al 2018).
Non financial factors
These includes elements or factors which are not directly influence cash capital but
they are require to consider before taking any relevant decision of future business activities.
Skills: Human resource is most essential factor of corporation. Manager take decision in
implementation of new project after taking consideration of their workforce that they are
comfortable in using new project work .
Technology: Different technique require for handling business is also affect its decision .
Business mangers adopt higher and advance technologies which helping attract and retain
customers.
Legal law: Organization not take any decision regarding project which break any law and
against the constitution of their country. Monetary policies, interest rate, attitude of political
authority also effect of decision making (Prabhat, Singleton, and Eyles, 2019).
From the overall discussion about payback period, net present value and effect of various
factors on projects, it is relevant for Genesis & Dreams Ltd to take decision in investment in
new project. Selecting project B is favourable for this organization to successfully attain their
future goals.
CONCLUSION
From the above analysis it has been concluded that success of the corporation is
depend on the decision taken by their management department. For this purpose they apply
pay back period and net present value technique of capital budgeting which help in
recognizing probability rate as well as cost cover up period of proposals. Manager took best
alternative on the basis of recognizing effect of financial and non financial factors which
considered, income, profitability rate, liability, rate of interest, and goodwill of the company.

REFERENECES
Books and Journals
Selyutina, L. G., 2018. Innovative approach to managerial decision-making in construction
business. In Materials Science Forum (Vol. 931, pp. 1113-1117). Trans Tech
Publications Ltd.
Gorshkov, A. S., 2018. Payback period of investments in energy saving. Инженерно-
строительный журнал: специализированный научный журнал, (2 (78)).
Leyman, P. and Vanhoucke, M., 2016. Payment models and net present value optimization
for resource-constrained project scheduling. Computers & Industrial
Engineering, 91, pp.139-153.
Sun, Y., Chen, L., Sun, H. and Taghizadeh-Hesary, F., 2020. Low-carbon financial risk factor
correlation in the belt and road PPP project. Finance Research Letters, p.101491.
Chuang, M. C., Yang, W.R., Chen, M. C. and Lin, S .K., 2018. Pricing mortgage insurance
contracts under housing price cycles with jump risk: evidence from the UK housing
market. The European Journal of Finance, 24(11), pp.909-943.
Prabhat, D., Singleton, A. and Eyles, R., 2019. Age is Just a Number? Supporting Migrant
Young People with Precarious Legal Status in the UK. The International Journal of
Children's Rights, 27(2), pp.228-250.