Business Decision Making

This report explores the concept of decision making in business, focusing on the case of Genesis & Dreams Ltd. It discusses the computation of payback period and net present value for different projects, as well as the financial and non-financial factors that influence decision making. The report concludes with recommendations for making informed decisions in business.

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
Yea
r
Cash inflow
£
Cumulative cash
inflow
1 18000 18000
2 16000 34000
3 19000 53000
4 22000 75000
5 37000 112000
For Motor project
1

= 3+ 17000/22000
= 3+.77 > 3.77
Calculation of pay back period of software project
Yea
r
Cash inflow
£
Cumulative cash
inflow
1 21000 21000
2 27000 48000
3 30000 78000
4 32000 110000
5 32000 142000
= 3+ 6000/320
= 3+.1875 = 3.1875
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.
Net present value of motor project
Yea
r
Annual cash
inflow
Discount rate 14
%
Present
value
1 18000 0.877 15786
2 16000 0.769 12304
3 19000 0.675 12825
2

4 22000 0.592 13024
5 37000 0.519 19203
Total 73142
Where, CFAT= Cash flow after tax
PV= Present value that is 14%
PVIF= Present value of inflow
PVOF= Present value of outflow
NPV= PVIF-PVOF
= 73142-70000
= 3142
Net present value of software project
Yea
r
Annual cash
inflow
Discount rate 14
%
Present
value
1 21000 0.8771929825 18417
2 27000 0.769 20763
3 30000 0.675 20250
4 32000 0.592 18944
5 32000 0.519 16608
Total 94982
I
NPV= PVIF
= 94982-840
= 10982
3

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
is consider 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.
Working capital: Requirement of cash for fulfilling short term liability is know as working
capital. It is sum up of total current assets (Sun, Chen, Sun, and Taghizadeh-Hesary, 2020).
Profit: Net value of monetary benefits earn by organization after considering and paying all the
liabilities as well as its expenses. Success of business corporation depend on sustainable
profitable ratio.
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.
4

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.
From the overall discussion about pay back 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.
5

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.
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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.
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