Business Decision Making Essay: Techniques and Financial Factors

This essay provides an in-depth analysis of business decision-making processes, focusing on investment techniques. It explores the payback period and net present value (NPV) methods, demonstrating their application through case studies involving projects A and B. The essay calculates and compares the payback periods and NPVs of these projects, offering justifications for investment decisions based on the results. Furthermore, it examines the impact of both financial factors, such as salvage value, depreciation, and tax benefits, and non-financial factors, like market trends and societal standards, on organizational decision-making. The conclusion emphasizes the importance of selecting investment proposals that yield optimal outcomes, highlighting the significance of financial and non-financial considerations in the decision-making process.

Business Decision Making

Table of Contents
Business Decision Making....................................................................................................................1
INTRODUCTION.................................................................................................................................3
MAIN BODY........................................................................................................................................3
Business decision making..................................................................................................................3
CONCLUSION.....................................................................................................................................6
REFERENCES......................................................................................................................................7

INTRODUCTION
Business decision making is denoted as taking the best level of decision in favour of
the organisation. This project will project case study on XYZ Plc Company. Henceforth,
report will emphasis on the payback period of investment decision making technique and net
present value method of investment decision making technique. Impact of financial and non
financial factors over company’s decision making will also understand in this project.
MAIN BODY
Business decision making
Business decision making is all about making the best level of decision in favour of
the organisation (Maxwell, 2016). Payback period, net present value and certain tactics are a
part of investment decision.
Payback period method
Payback period is a term that denote the time taken in recovering the overall
investment amount of the company. This is the least amount of time that is needed to recover
the overall investment company has done in a certain project. This is the at which level
company will generate a amount of revenue out of the certain project that will be able to
collect the overall amount of investment company has incurred in a certain project. This is the
minimum amount any project should generate out of the operations of organisation. The time
of payback period is minimum will get the preference in the investment decision in this
project (Chai and et.al.,2020). Whatever inflow company generate post payback time is the
profit of the company against a certain project. The inflow taken in this projected are all
expected as company expect inflow and income every year that it will entertain out of a
certain project. On the basis of the expected company’s cash inflow investment decision is
making in this method.
Project A= Software Project
Total investments = £ 100000
Cash inflow
Year Cash Inflow (£) Total cash inflow (£)
1 28000 28000

2 32000 60000 (28000 + 32000)
3 35000 95000 (28000 + 32000 +
35000)
4 55000 150000 (28000 + 32000 +
35000 + 55000)
5 78000 228000 (28000 + 32000 +
35000 + 55000 + 78000)
Payback period = 3 + 1.09 (5000/ 55000 * 12) [ 100000 – 28000 + 32000 + 35000]
= 3 year and 1.09 months
Project B – Laundrette Project
Total investment = £ 120000
Cash inflow
Year Cash Inflow (£) Total cash inflow (£)
1 31000 31000
2 38000 69000 (31000 + 38000)
3 43000 112000 (31000 + 38000 +
43000)
4 64000 176000 (31000 + 38000 +
43000 + 64000)
5 89000 265000 (31000 + 38000 +
43000 + 64000 + 89000)
Payback period = 3 year + 1.5 (8000 / 64000 * 12) [£ 120000 – 31000 + 38000 + 43000]
= 3 year and 1.5 months
Justification
Based on the concept of payback period method company should invets in project A
consume lesser pay back period time. This concept favour such project that requires less pay
back period time frame.

Net present value method
Net Present Value method is another investment decision making method that is
taken into account while making the best level of investment decision in favour of the
organisation. This investment decision making method also involve tie value of money in
making the investment decision in organisation. This is the net benefits company will
generate out of the investment decision it make (Church and et.al., 2019). The project
generates the maximum amount of net present value get the priority in the investment
purposes. This is a well structured technique that company can utilise to compare both the
investment option available in the pocket. Decision making under this method consume time
value of money that is a key advantage associated with the method.
Project A
Year Cash inflow (£) Time value of
money (@11%)
Actual future cash
inflow (£)
1 28000 .901 25228
2 32000 .812 25984
3 35000 .731 25585
4 55000 .66 36300
5 78000 .59 46020
Total cash inflow (£) = 159117 ( 25228 + 25984 + 25585 + 36300 + 46020)
Net present value (£) = Total expected cash inflow – Total Investment
= 59117 (159117 – 100000)
Project B
Year Cash inflow (£) Time value of
money (@14%)
Actual future cash
inflow (£)
1 31000 .901 27931
2 38000 .812 30856
3 43000 .731 31433
4 64000 .66 42240
5 89000 .59 52510

Total cash inflow (£) = 184970 (27931 + 30856 + 31433 + 42240 + 52510)
Net present value (£) = Total expected future cash inflow – Total investment
= 64970 (184970 - 120000)
Justification
Based on the concept of Net Present Value technique company should invest in
Project B as it result into more present value as compare to Project A.
Financial Factor: Financial factors different financial elements such as salvage value of the
investment, depreciation, benefits in form of income tax, inflow and other such elements. All
these financial tools are associated with the financial factors (Eti, 2019). How much the
financial resources company hold and how much loan it requires taking against the financial
requirements of the organisation in investing into a specific project.
Non financial factor: Non financial factor comprises with the elements like requirements of
market, society standard of living and various other elements (Jackson and Orr, 2019).
Current trend in market is a key factor that directly influences the investment decision
making of the organisation.
CONCLUSION
Investment decision technique is based on the factors that which proposal generate the
best level of outcomes against the investment it has entertained. Payback period technique
favour such proposal that consume less pay back period time and net present value favour
such proposal that derive more net present value out of a certain project. Financial factor
involve factors such as total expected life of project, depreciation and other such elements.
REFERENCES
Books and Journals

Chai, Y. and et.al.,2020. Investment decision optimization for distribution network planning
with correlation constraint. International Transactions on Electrical Energy
Systems. 30(7). p.e12323.
Church, B. K. and et.al., 2019. A dollar for a tree or a tree for a dollar? The behavioral effects
of measurement basis on managers' CSR investment decision. The Accounting
Review. 94(5). pp.117-137.
Eti, S., 2019. The use of quantitative methods in investment decisions: a literature review.
In Handbook of research on global issues in financial communication and
investment decision making (pp. 256-275). IGI Global.
Jackson, C. and Orr, A., 2019. Investment decision-making under economic policy
uncertainty. Journal of Property Research. 36(2). pp.153-185.
Maxwell, A., 2016. Investment decision-making by business angels. In Handbook of
Research on Business Angels. Edward Elgar Publishing.