Business Decision Making: NPV, Payback, & Financial Factors - CCCU

This report provides an analysis of business decision-making, focusing on the payback period, Net Present Value (NPV), and financial and non-financial factors. It includes calculations of NPV and payback periods for two projects, A and B, with an interpretation of the results, ultimately recommending project A due to its higher NPV. The report also discusses the impact of front-loaded bidding strategies and the importance of considering both financial and non-financial factors in investment decisions. Internal factors like fixed asset investments and ownership patterns, as well as external factors like the state of the economy and capital market structure, are examined for their influence on financial decision-making. Non-financial factors, such as meeting legislative requirements, industry standards, and community relations, are also highlighted. The report concludes that a comprehensive approach, considering both financial metrics and non-financial aspects, is crucial for effective business decision-making.

Business decision
making

TABLE OF CONTENT
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
Heading 1.....................................................................................................................................3
Heading 2.....................................................................................................................................3
Heading 3.....................................................................................................................................3
CONCLUSION ...............................................................................................................................3
REFERENCES................................................................................................................................4

INTRODUCTION
Business decision-making is refers to the step by step process which are help for allowing
professionals in order to solve problems by weighing evidence then examining alternatives by
choosing a path from there. This is considered as define process which are help to provide an
opportunity and also help for review all the decision accordingly. In the presents report will
comparing the key aspect of the payback period and financial and non- financial factors that can
be used for decision making.
MAIN BODY
Calculation of NPV for project A
Year Cash
inflows
PV
factor
@
11%
Discounted cash inflows
1 60000 0.901 54054.05
2 68,000 0.812 55190.33
3 82,000 0.712 58365.98
4 109,000 0.659 71801.68
5 155,000 0.593 91984.96
Total discounted cash
inflow
331397
Initial investment 185000
NPV (Total discounted
cash inflows - initial
investment)
146397

Computation of Payback period
Year Cash inflows Cumulative cash inflows
1 60000 60000
2 68000 128000
3 82000 210000
4 109000 319000
5 155000 474000
Initial investment 185000
Payback period 3
-0.2
Payback period 3 year and 7 months
Calculation of NPV for project B
Year Cash inflows PV
factor @
11%
Discounted cash
inflows
1 65000 0.901 58558.56
2 69,000 0.812 56001.95
3 77,000 0.712 54807.08
4 105,000 0.659 69166.75
5 145,000 0.593 86050.44
Total discounted cash
inflow
324585
Initial investment 182000
NPV (Total discounted 142585

cash inflows - initial
investment)
Computation of Payback period
Year Cash inflows Cumulative cash inflows
1 65000 65000
2 69000 134000
3 77000 211000
4 105000 316000
5 145000 461000
Initial investment 182000
Payback period 3
-0.3
Payback period 3 year and 7 months
Interpretation- Net present value is referring to the financial metric in order to capture the total
value of an investment opportunity. The reason behind calculated NPV of all the project all of
cash inflows and outflows can be associated with investment, discount and all future cash flows
for present day. The resulting number after adding all positive and negative cash flows together
on the basis of investment’s NPV. A positive NPV get by after accounting for time value for
money as well as it helps to make money in order to proceed with investment. This is one of the
useful term in order to get better for company so that it help to determine a net project is in loss
or profit (Knoke, Gosling and Paul, 2020).
For the present project it has been identified that project A will be select by company
because the NPV of project A is higher than project B. That is why it help company to do better
investment in larger scale as well as it is higher than project as NPV that can be help for large
number of production. On the other hand, front loaded bidding strategy is help to increase NPV
of project and it can be considering as potential disadvantages of following a front loaded
bidding strategy that is substantial.
In addition to this payback period is refers to the amount and time taken for recover the
cost of an investment. This is an investment that reaches a breakeven point. For company it helps

for invest their money to get paid back in order to consider importance of payback period. The
benefit of calculated payback period of company in order to identify the required period without
any problem as well as it is necessary for involving reliability of project and cons are related to
period that help for including time value (Basher and Raboy, 2018).
In order to understand the financial data and metrics it is necessary to help company’s
management for determine growth and profitability potentials of organisation. Otherwise it can
be seen as critical, also management and other internal and external stakeholders are not able to
give credit to non- financial factor that’s can impact big. In addition to this, there are financial
factor which affect the business decision making in orders to understand the internal factors that
influence decision making process also manufacturing company faced problem in order to
understand the fixed investment for asset as well as capital structure that has large share of long
term capital. The pattern of ownership also influences the financial decision making that is
closely held company with one or more shareholder. Liquidity positions can be impact on
financial decision making while dividend is normally paid out of cash, sound liquidity positions
that can be adopt liberal dividends policy so that working capital is very large in order to
understand the past obligations (Dobrowolski and Drozdowski, 2022). On the other side,
external factor can be influence related to state of economy and impact of organisation financial
decision making. The structure of capital and money market influence financial decision making
by it is not easy to select proportion mix of capital structure.
Along with this, non- financial factor for investment impact on meeting the requirement
of future and current legislation. Then it is necessary to consider all the matching industry
standards and good practice which is necessary for improving relationship with customers and
supplies in order understands their preferences as well as it help to identify the factor which
help for profit in industry. Improving business reputation and relation with local community so
that it helps to develop capabilities of business and able to build skills and experiences in
management. There are some cases in which financial and non-financial factor are important to
consider each of factor which is help for taking effective decision for business in order to invest
in better terms (Dusseault and Pasquier, 2021).
Conclusion
It has been concluded that there is different type of factor which influence business decision
making. Choosing company has select project A for further expansion in order to production of

large number of goods. To invests invest in project A will help company to get better percentage
of profit.

REFERENCES
Books and Journals
Knoke, T., Gosling, E. and Paul, C., 2020. Use and misuse of the net present value in
environmental studies. Ecological Economics, 174, p.106664.
Basher, S.A. and Raboy, D.G., 2018. The misuse of net present value in energy efficiency
standards. Renewable and Sustainable Energy Reviews, 96, pp.218-225.
Dobrowolski, Z. and Drozdowski, G., 2022. Does the Net Present Value as a Financial Metric
Fit Investment in Green Energy Security?. Energies, 15(1), p.353.
Dusseault, B. and Pasquier, P., 2021. Usage of the net present value-at-risk to design ground-
coupled heat pump systems under uncertain scenarios. Renewable Energy, 173, pp.953-
971.
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