Business Decision Making and Investment Appraisal Report for A&B plc

This report delves into the critical role of decision-making in business, emphasizing its impact on organizational success. It focuses on A & B plc, a UK and European restaurant chain, evaluating investment in dishwashing or software projects. The report explores business decision-making processes, investment appraisal techniques like Net Present Value (NPV) and payback period to identify the most beneficial project. The analysis reveals that Project A (dishwashing machine) is more advantageous due to a higher NPV and a comparable payback period. Financial factors like profitability, liquidity, and risks, along with non-financial aspects such as management team, human capital, and economic environment, are considered. The conclusion highlights the importance of informed decision-making for business growth and success, recommending the selection of the dishwashing machine project based on the analysis.

BUSINESS DECISION MAKING

TABLE OF CONTENTS
TABLE OF CONTENTS................................................................................................................2
INTRODUTION..............................................................................................................................1
TASK...............................................................................................................................................1
CONCLUSON.................................................................................................................................4
REFERENCES................................................................................................................................5

INTRODUTION
Decision making plays an important role in the business. Management is required to take
number of decision daily small as well as big. Decision having impact over the business
organisation are to be analysed using tools and techniques for sound and effective decisions by
the management. Present report is based over A & B plc that is restaurant chain operating in UK
and parts of Europe. Company is proposing to invest in the dishwashing or software projects
after analysing the most beneficial project.
TASK
Business Decision making
Decision making process involves identifying the goals, getting relevant and necessary
information and also weighing the alternatives for making decisions. Decision making could be
termed as the most vital component of the business success. The decisions are based over
foundation of the knowledge and strong reasoning leads entity to the long term prosperity. On
the other business decisions made on the flawed logic or incomplete information can affect the
business operations significantly. Business face difficulty in making choices, the decisions about
the choices are to be made in timely fashion and as per the demands of market (Weygandt and
et.al., 2018). Ultimately, the success of business is driven by the quality of decisions that are
made and implemented by the business.
Investment Appraisal techniques
A business has to take financial decisions for which they have to identify the results and
profitability of the proposed projects. They choose the most beneficial alternative for the
business. Investment appraisals enable the company to identify the viability of investments.
Different techniques used are net present value, payback period, accounting rate of return and
internal rate of return in the investment appraisals.
Net Present Value
It is the techniques used by management for identifying the profitability of investment. It
identifies whether the cash flows generated from the project will be enough for recovering the
cost of investments or not. Projects with positive NPV are chosen after discounting the cash
flows.
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Computation of NPV Computation of NPV
Project A Project B
Year
Cash
inflows
PV
factor
@
14%
Discoun
ted cash
inflows Year
Cash
inflows
PV
factor
@
14%
Discount
ed cash
inflows
1 30000 0.877
26315.7
9 1 40000 0.877 35087.72
2 35000 0.769 26931 2 45000 0.769 34626
3 40000 0.675 26999 3 50000 0.675 33749
4 60000 0.592 35525 4 75000 0.592 44406
5 90000 0.519 46743 5 80000 0.519 41549
Total
discounted
cash inflow 162514
Total
discounted
cash
inflow 189418
Initial
investment 120000
Initial
investment 150000
NPV (Total
discounted
cash inflows
- initial
investment) 42514
NPV
(Total
discounted
cash
inflows -
initial
investmen
t) 39418
Payback period
The payback period is also capital budgeting techniques used by the management to
identify the time taken by project to cover the cost of the project (Skyrius, 2018). Company
could identify the break even point using this technique after which it will start earning profits.
Projects with lower payback period are chosen by the enterprise.
Computation of Payback period
Project A Project B
Year
Cash
inflows
Cumulative cash
inflows
Cash
inflows
Cumulative cash
inflows
1 30000 30000 40000 40000
2 35000 65000 45000 85000
2

3 40000 105000 50000 135000
4 60000 165000 75000 210000
5 90000 255000 80000 290000
Initial
investment 120000 150000
Payback
period 3 3
0.4 0.3
Payback
period
3 year and 5
month
3 year and 4
months
Recommendations
The above techniques provides that Project A has more positive NPV in comparison with
B. Cost of investment in Project B is higher where the NPV is lower. Payback period shows
Poject A will be recovered in 3 years and 5 months where it will take 3 years and 4 months to B.
The project B have lower payback period just by one month. It could be analysed from the above
two techniques for investment appraisal that project A is more beneficial for the company as
NPV is higher and will reach break even point in 3 years and 5 months. This project is chosen
the NPV is higher as against the benefit it will derive due to lower payback of one month from
project B. Therefore the maximum benefits will be derived from project A which is dishwashing
machine.
Financial and non financial factor affecting the decision making
Financial Factors
Profitability
A company must be profitable to make fresh investment for expansion of the business. a
company not having sufficient profits will not be able to meet the expenses of the new project.
Liquidity
It is one of the most important factors where company is proposing to make investments.
The availability of funds has to be ensured by the management before the financial decisions are
taken by the management.
Risks
Business has to identify and evaluate the potential risks associated with the project so that
the steps and measures could be taken by the management for avoiding the effects.
Non Financial Factors
3

Management Team
Management team play an important role in meeting the desired goals and objectives of
the business. Investment would be successful if the management team is not effective and
efficient.
Diversified Human capital risk
Human capital is an important factor to be considered in the decision making by business.
it could not achieve the targets and profits if the human capital is not given defined roles and
responsibilities at which they are good (Turner and Coote, 2018).
Economic environment
The economic situation of the country in which company is operating affects buying
capacity of the people and affects the estimations and assumption of the company. This non
financial factor is to be evaluated before making investments.
CONCLUSON
From the above report it could be concluded that the decision making plays an important
role in the success of the organisation. Decisions are taken with view of solving the problems
and providing the business with better means of operations managers after evaluating the
different option that are available to them should choose the best option for the company.
Decisions are taken that help in the growth and success of the business.
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REFERENCES
Books and Journals
Weygandt, J.J., and et.al., 2018. Managerial Accounting: Tools for Business Decision-making.
John Wiley & Sons.
Delen, D., Moscato, G. and Toma, I.L., 2018, January. The impact of real-time business
intelligence and advanced analytics on the behaviour of business decision makers. In 2018
International Conference on Information Management and Processing (ICIMP) (pp. 49-
53). IEEE.
Skyrius, R., 2018. Business Decision Making. In 2001 Informing Science Conference (Vol. 1).
Turner, M.J. and Coote, L.V., 2018. Incentives and monitoring: impact on the financial and non-
financial orientation of capital budgeting. Meditari Accountancy Research.
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