Essay on Business Decision Making: NPV, Payback, and Factors

This essay examines business decision-making processes, focusing on both financial and non-financial factors. It includes a Net Present Value (NPV) analysis and a payback period analysis for two investment projects, demonstrating how these tools can inform investment choices. The essay highlights that project A has a higher NPV than project B, suggesting it as a more favorable option. It also discusses the payback periods of the projects, with project B being the quicker option. Furthermore, the essay explores factors influencing decision-making, such as return on investment, cash flow, project scope, and stakeholder interests. The essay references relevant academic sources to support its arguments.

Essay on Business
Decision Making

Table of Contents
MAIN BODY...................................................................................................................................3
REFERENCES................................................................................................................................6

MAIN BODY
Net Present Value
Discount rate 14.00%
A B
Year
Cash
flow PF Value
Discounted
value Cash flow PF Value
Discounted
value
1 30000 0.877 26316 40000 0.877 35088
2 35000 0.769 26931 45000 0.769 34626
3 40000 0.674 26999 50000 0.674 33749
4 60000 0.592 35525 75000 0.592 44406
5 90000 0.519 46743 80000 0.519 41549
162514 189418
Investment 120000 Investment 150000
NPV 42514 NPV 39418
Interpretation: From the above NPV analysis of the above presented two investment it
has been analysed that Project A will be better option for the manager to adopt as it has been
analysed that Project A net present value is higher than that of a Project B. NPV of Project A is
42514 at the same time NPV of Project B is 39418 it generally shows that it will be very much
better option for the company to adopt the Project A as project with higher NPV is always
beneficial for the manager as compare to project B.
Pay Back Period
A B
Investment cash Flow cash Flow
1 30000 30000 40000 40000
2 35000 65000 45000 85000
3 40000 105000 50000 135000
4 60000 165000 75000 210000

5 90000 255000 80000 290000
3 3
0.3 0.2
Pay back period 3.3 Pay back period 3.2
Interpretation: After looking at the pay back period analysis of both the project it has
been analysed that using project B for the company will be better option as compare to the
Project A As payback period framework shows that with the help of Project A, organization will
able to bring the investment back in 3 year and 3 months. At the same time Project B of the
company will provide the investment back in 3 year and 2 month/ Hence, from the same it has
been understand that if looking at the pay back period before making the decision than Project B
will be more beneficial as compare to the Project A in real.
Different factor which generally used to contribute in decision making
In regards of making the variety of the different sort of the decision in the organization,
manager has to consider both financial and non financial factor in making any sort of decision.
Starting from the financial factor it has been identified that Return of investment is consider the
first, generally all the manager generally used to see the return which will be received by the
organization by making some sort of the investment in the market. As all the decision which
generally taken by the manager is taken to enhance the level of the return of different individual
in the market. So the first financial factor which generally used to contribute the decision making
is the rate of return on the investment (Reed and Berrier, 2017).
Another financial factor which will be consider by the manager at the time of making the
decision will be Cash flow, as manager will generally try to draw the estimated cash flow for the
company in the coming future and on the basis of same used to make the different decision in the
organization. Manager looks for the project which generally used to provide the good sort of the
cash flow for the company in the long run. Hence cash flow is the another important factor which
is consider at the time of making different financial decision in the organization in long run.
Another important financial factor which are generally consider by the organization is the
pay back period of the project. As all the manager generally look for the project who can pay

back the amount of the investment which has been incurred by the organization in adopting the
project in the organization (Cowley and et.al., 2018). As project with lesser pay back in the
market generally used to help the company in getting external benefit as compare to the project
with the higher pay back period. Another financial factor which is consider by the manager at the
time of making different decision is cost of source of finance, as it has been identified that
manager generally looks whether organization will able to get the fund at the lowest cost or not
from the market and on the basis of the same only manager in the market used to make the
different decision in regards of procuring the type of the project in organization.
There are many non financial factor which are also consider by the manager at the time of
making the variety of the different decision in the organization. One of such factor is the scope of
the project, this sort of the factor is generally consider by the organization to make sure that the
project which organization is looking to adopt will able to cover all the implemented scope
which is expected by the company in the long run (Panda, Begley and Daly, 2018).
Another non financial factor is related to company ability to digest the decision, as all the
manager generally used to see the current organization position and on the basis of the same try
to fix or fix the assumption in the organization, that whether organization member will able to
adopt the same decision very effectively as if organization will not able to do the same in the
organization it will impact the efficiency of variety of different operation which are generally
carried out in the organization in the long run.
Another non financial factor which is generally consider by the manager is the interest
level of the different stakeholder. As it is the prime responsibility of company to make the
stakeholder happy in the organization. So for the same reason manager need to understand the
need and preference of different individual and on the basis of the same used to derive whether
any decision has to be taken or not. Hence, stakeholder preference also contribute to any sort of
the decision making in the organization in the long run (Nguyen, Gallery and Newton, 2019).

REFERENCES
Books and Journals
Reed, A. R. and Berrier, K. L., 2017. A qualitative study of factors influencing decision-making
after prenatal diagnosis of Down syndrome. Journal of genetic counseling, 26(4),
pp.814-828.
Cowley, L. E and et.al., 2018. Factors influencing child protection professionals’ decision-
making and multidisciplinary collaboration in suspected abusive head trauma cases: A
qualitative study. Child Abuse & Negle. 82. pp.178-191.
Panda, S., Begley, C. and Daly, D., 2018. Clinicians’ views of factors influencing decision-
making for caesarean section: A systematic review and metasynthesis of qualitative,
quantitative and mixed methods studies. PloS one. 13(7). p.e0200941.
Nguyen, L., Gallery, G. and Newton, C., 2019. The joint influence of financial risk perception
and risk tolerance on individual investment decision‐making. Accounting &
Finance. 59. pp.747-771.