Business Decision Making Essay: Investment Proposals for XYZ plc

This essay provides a comprehensive analysis of business decision-making processes, focusing on investment evaluation techniques for XYZ plc. It explores the Net Present Value (NPV) and payback period methods, comparing their application in evaluating two investment projects (A and B). The NPV analysis reveals that both projects are viable, with Project B offering a higher return. The essay then discusses the advantages and disadvantages of the NPV method, highlighting its consideration of the time value of money and its potential inaccuracies in long-term projections. The payback period analysis determines the time frame for investment recovery for both projects, revealing that both projects will give return in same time. Furthermore, the essay delves into various financial and non-financial factors that influence managerial decisions, such as cost, profitability, technology presence and the availability of human resources.

Business Decision Making

TABLE OF CONTENTS
Evaluating the feasibility of investment proposals for XYZ plc............................................3
Different factor consider at the time of making financial decision........................................6
REFERENCES...........................................................................................................................8

The decision-making process is an essential part of every business organization as the
decision making is the key function of every business without which business cannot be run
smoothly. These decisions help in enhancing the performance of the business or for the
further business expansion. This essay provides an in-depth analysis of the various
investment evaluation techniques which can be used by XYZ plc for taking its decision.
Evaluating the feasibility of investment proposals for XYZ plc
The company is using two types of techniques which are, NPV method and the
payback period method for the purpose of evaluating the feasibility of the projects.
Net present value
It is the one of the capital budgeting technique which is used by the organizations for
the purpose of determining the profitability and the feasibility of the project (Rostarova and
Rentkova, 2016). It is calculated by subtracting total present value of cash outflow from the
present value of cash inflow. If the outcome is positive, then the organization should proceed
with the plan and if it is negative then it should drop the idea to invest in its as it is not
profitable.
Project A
Computation of NPV
Year Cash inflows
PV factor
@ 11%
Discounted
cash
inflows
1 28000 0.901 25225.2
2 32000 0.812 25972
3 35000 0.731 25592
4 55000 0.659 36230
5 78000 0.593 46289
Total discounted cash
inflow 159308
Initial investment 100000
NPV (Total
discounted cash
inflows - initial
investment) 59308

Project B
Computation of NPV
Year
Cash
inflows
PV factor
@ 11%
Discounted
cash
inflows
1 31000 0.901 27927.9
2 38000 0.812 30842
3 43000 0.731 31441
4 64000 0.659 42159
5 89000 0.593 52817
Total discounted cash
inflow 185187
Initial investment 120000
NPV (Total discounted
cash inflows - initial
investment) 65187
On analysing the NPV of both the projects, it can be said that XYZ plc can invest any
of the two as both are having positive NPV, but since the company is required to choose
between the two then it should go for project B as the NPV of project B is higher, that is,
£65187 in comparison to project A which is £59308. This technique is very useful and
acceptable because of its various benefits (Häcker and Ernst, 2017). It takes into
consideration the time factor while evaluating the future cash inflows. Along with that the
discounting factor can also be adjusted with respect the risk prevailing in the market. This is
not based on the assumption that the cash inflows will be reinvested at the IRR unlike IRR.
Despite of these benefits, it has certain disadvantages as well. For the projects having
the longer time frame, there are chances of getting the inaccurate estimation of the future cash
inflows which may affect the decision of the management (Benamraoui and et.al, 2017).
Also, in case there is any error in determining the discounting rate then it may lead to
inaccurate estimation of cash inflows making the decision wrong.
Payback period

Payback analysis, it is the analysis which used to help the company in getting the
knowledge about what period of time will be taken by the investment to return back the
investment which has been made.
Project A
Computation of Payback period
Year
Total cash
flow
Cumulative cash
flow
1 28000 28000
2 32000 60000
3 35000 95000
4 55000 150000
5 78000 228000
Payback
period
3 + 0.1
= 3.1 years
Project B
Computation of Payback period
Year
Total cash
flow
Cumulative cash
flow
1 31000 31000
2 38000 69000
3 43000 112000
4 64000 176000
5 89000 265000
Payback
period
3+ 8000/64000
= 3.12years
After going through the analysis it has been analysed that both the project will able to
give the return back in 3.1 years. So it can be said that procuring any of the project on the
basis of payback period will not be bringing any of the changes in the organization. As both
the project will be giving the return in the same period of the time for the organization.

Different factor consider at the time of making financial decision
There are many different factors which are generally considered by the manager in the
organization to make the variety of the decision in the organization. Some of the financial and
non financial factors are as follows:
Financial factor, first element which is generally consider by the organization is cost
related to making different decision in the organization, as all the manager always look to
have the resources which is low in the cost, so all the manager generally see’s the cost factor
(Bangma and et.al., 2019). Profitability, it is the another factor which is generally consider
by the manager as all the manager generally looks to maximize the profit for the business as
result all the manager generally used to consider the profitability of the different project and
on the basis of the same the project with highest profitability used to get selected. Payback
period is another important factor which is generally consider by the manager in the
organization at the time of making different decision. As all manager generally used to look
for the project in the organization who is able to give the good return for the organization in
shorter period of the time. For the same reason manager generally used to consider payback
period of different project and on the basis of the same used to select the best project.
Non-financial factor: These are another factor which are also consider by different
manager at the time of making different decision in the organization. Technology presence is
the first non-financial factor which is generally consider by the organization at the time of
making different decision in the organization (Consigli, Kuhn and Brandimarte, 2017).
Generally, manager used to see the current technology presence of the company and the
benefit which will be brought by the new technology before making any sort of the decision
in the organization. Another non-financial factor which is generally consider by all the
organization is the presence of Human resources in the organization, all the organization used
to look at the current presence of Human resource and used to compare the same with the
amount of the Human resource which will be require in the organization to carry out
operation of new technology. On the basis of the same manager generally used to make the
decision about the technology which can be procure in organization.

REFERENCES
Books and Journals
Bangma, D. F. and et.al., 2019. Financial decision-making in adults with
ADHD. Neuropsychology.
Benamraoui, A. and et.al, 2017. Net Present Value Analysis and the Wealth Creation Process:
A Case Illustration. The Accounting Educators' Journal. 26.
Consigli, G., Kuhn, D. and Brandimarte, P., 2017. Optimal financial decision making under
uncertainty. InOptimal Financial Decision Making under Uncertainty(pp. 255-290).
Springer, Cham.
Häcker, J. and Ernst, D., 2017. Investment Appraisal. In Financial Modeling (pp. 343-384).
Palgrave Macmillan, London.
Rostarova, M. and Rentkova, K., 2016. Investment criteria of the successful start-up
accelerators. Economic and Social Development: Book of Proceedings. p.109.