Business Decision Making Essay: Capital Budgeting for DDK Plc Projects

This essay examines the business decision-making process, focusing on DDK Plc's investment in manufacturing belts and trainers. It utilizes capital budgeting tools, specifically the payback period and net present value (NPV), to evaluate the profitability of two potential projects, Project A and Project B. The analysis includes detailed calculations for both projects, comparing their financial returns and timeframes for recouping the initial investment. The essay also delves into the financial factors, such as earnings and expenditure, and non-financial factors, including resources and relationships, that influence investment choices. The conclusion recommends Project B due to its superior financial performance, emphasizing the importance of considering both financial and non-financial aspects for sound business decisions.

Business decision Marketing

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................2
MAIN BODY..................................................................................................................................2
Pay back period............................................................................................................................2
Net present value (NPV)..............................................................................................................3
Financial factors...........................................................................................................................5
Non-financial factors...................................................................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Business decision making is the step by step process that is used by the professionals
which also enable them to solve problem by weighing evidence and choosing the correct path for
the company. In the present study, DDK Plc is also investing upon project manufacturing in belts
and trainers. For that, there are two projects used by the company and by using capital budgeting
tools, it determines which is fruitful or not. Further, the study also describes some financial and
non-financial factors which needs to be taken which help to make better decision for the
company.
MAIN BODY
Pay back period
For project A
Initial investment 170000
Year
Net cash
flow
Cumulative
Cash flow
1 45000 45000
2 45000 90000
3 35000 125000
4 70000 195000
5 82000 277000
3 45000
3.6 years 0.6
For project B
Initial investment
190000

Year
Net cash
flow
Cumulative
Cash flow
1 50000 50000
2 45000 95000
3 70000 165000
4 90000 255000
5 90000 345000
3 years 25000
3.3 years 0.3
Interpretation: In accordance with the above table, it can be interpreted that DDK Plc can get
the return amount within approx. 3 years. Such that as per the project A, it can be stated that by
applying tool, company get return the invested amount within 3 years 6 months. Whereas as per
the project B, company get the amount within 3 years 3 months. This entails that company
should focused upon project B only because it can get the amount back within less time as
compared to Project B. That is why, B is more preferable than other.
Net present value (NPV)
Discounted rate : 14%
For project A
Year
Net cash
flow
PV
factor
@
14%
Discounte
d cash
inflows
1 45000 0.877 39474
2 45000 0.769 34626
3 35000 0.675 23624
4 70000 0.592 41446
5 82000 0.519 42588
Total
discounte
d cash
inflows 181758

Less:
initial
investmen
t 170000
NPV 11758
For project B
Year
Net
cash
flow
PV
facto
r @
14%
Discounte
d cash
inflows
1 50000 0.877 43860
2 45000 0.769 34626
3 70000 0.675 47248
4 90000 0.592 53287
5 90000 0.519 46743
Total
discounte
d cash
inflows 225764
Less:
initial
investme
nt 190000
NPV 35764
Interpretation: From the above table, it is evaluated that NPV of the project B is higher as
compared to Project A. such that as per the initial amount invested, company generate 35764
within 5 years whereas in the case of project A, it get 11758 only within same tenure. Therefore,
it can be stated that Project B is far beneficial for DDK Plc as it helps to get higher return as
compared to other which in turn shows that company is able to generate the best outcomes.
Further, for the new proposal, DDK Plc must choose trainers because it provides best results as
compared to belt. Also, it is examined that trainers get better results, as it helps to increase the
overall financial performance of a firm as well. That is why, higher return project is far

preferable as compared to low return. Hence, Project B i.e. trainer is opted by DDK Plc because
it provide higher return by low investment which is not possible in Project A.
Financial factors
There are numerous financial factors which needs to be consider while investing a
project. Some of them are as mentioned below:
 Earning: In order to looking for any investment, company must consider the earning or
net income of the company within a year. This is one of the highly financial factor that
affect the investment appraisal (Xiaolong, Guanghe and Wei, 2017). Such that if the
income of the company is not good, then it affect the investment in adverse manner. This
is also analyzed that through positive sales activity, company is able to make further
investment decision because it causes positive impact upon brand as well.
 Expenditure: For any investment, company must consider expenses incurred by the firm
which affect the overall performance of a company. Such that if sales activity of a entity
reflects negative and expenses are high then it is not worthy to invest within such
investment. As it leads to cause negative impact upon the chosen investment (Arif-Ur-
Rahman and Inaba, 2020).
Non-financial factors
 Resources: It is analyzed that in order to invest within any project, company must look
for the available resources that helps the company to improve the performance. In the
same way, employees and enough financial as well as physical resources should be
considered in order to generate the best outcomes (Burkhanov, 2020). That is why, before
any investment, there is a need to ensure that resources are available for the company that
leads to minimize the error. Relationship: For any investment, there is a need to monitor all the changes within
market and have suppliers that assist to make investment successful. Similarly, having a
brand image at market will also lead to generate the best relationship with customers by
offering best variety of products. This in turn also helps to meet the defined aim as well.

 Meet the requirement of current legislation: It is examined that, for any investment
there is a need to comply with current legislation which assist in smooth running of a
company (Roychowdhury, Shroff and Verdi, 2019). Moreover, it is also analyzed that
with the help of effective laws and regulations, company is able to meet the defined aim
and able to invest accordingly.
CONCLUSION
By summing up above report it has been concluded that Project B should be chosen by
DDK Plc because the amount which is invested for the firm can be return in less duration as
compared to project A. On the other side, through the NPV it is also examined that company can
get high return as compared to project A even after investing high amount. Further, through the
above it has been summarized that DDK Plc must look for different financial as well as non-
financial factors in order to make any investment decision. So that it causes positive impact upon
financial performance of a firm.

REFERENCES
Books and Journals
Arif-Ur-Rahman, M. and Inaba, K., 2020. Financial integration and total factor productivity: in
consideration of different capital controls and foreign direct investment. Journal of
Economic Structures. 9(1). pp.1-20.
Burkhanov, A., 2020. Practice of investment funds development in developed countries. Архив
научных исследований. (23).
Roychowdhury, S., Shroff, N. and Verdi, R.S., 2019. The effects of financial reporting and
disclosure on corporate investment: A review. Journal of Accounting and Economics. 68(2-
3). p.101246.
Xiaolong, L., Guanghe, R. and Wei, Z., 2017. How Does Financial Factor Distortion Affect
Enterprise Innovation Investment?——Analysis from the Perspective of Financing
Constraints. Studies of International Finance, p.12.