Investment Appraisal Techniques for Business Decision Making- Essay

This essay explores business decision-making through the lens of investment appraisal techniques, focusing on Akwaaba Plc, a UK-based textile fashion company. The report evaluates two potential projects: bags and shoes, using payback period and net present value (NPV) methods. The analysis reveals that while the payback period is slightly shorter for the shoes project, the NPV is higher, suggesting it's the better investment. The essay also discusses financial factors like inflation and loan interest, and non-financial factors such as customer needs and opportunity cost, which influence investment decisions. Ultimately, the report concludes that using investment appraisal techniques helps companies make informed decisions to maximize profit and minimize losses, recommending Project B (shoes) for Akwaaba Plc.

Essay on Business
Decision Making

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK ..............................................................................................................................................3
Figure out the value of Payback Period of Akwaaba Plc:......................................................3
Figure out the value of Net Present Value of Akwaaba Plc..................................................4
Elements effecting investment decision making....................................................................6
CONCLUSION ...............................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
The investment appraisal techniques is the best tool for every investors, shareholders and
businesses to identify whether an investment is profit making in future or not. In this report, the
company Akwaaba Plc uses this method for business decision making (Carter and Leard., 2021).
This enterprises deals in textile fashion which is operated from United Kingdom and other parts
of European countries. Recently company trade in the products that are bags and shoes, due to
lack of resources company is not able to deals in both the products. For future profitability
company have to select one product for its investment growth and expansion. The following
report include two types of investment appraisal techniques for measuring the future benefits of
both the projects. Further, financial and non – financial factors that affect financial decisions are
discussed below.
TASK
Figure out the value of Payback Period of Akwaaba Plc:
Every company has to make decisions or financial analysis before making an investment.
The company Akwaaba Plc also used tool for determining which project is better and more
profitability and outcomes making in future (Christodoulides, Aresti and Florides., 2019). It
consider two techniques; Pay period and NPV.
Pay back period: It is used to calculate the average time taken by the investment to
recoup its initial cost or expenses. Generally this tool is used by the investor or a firm to reach
break-even point that means where investment value of project and its future outcomes are on
same level. The following computation of Pay back period of Akwaaba Plc are as follows:
Year Project A – Bags
Net cashflow £
Cash flow Cumulative cash flows
0 -180000 0
1 48,000 48000
2 62,000 110000
3 85,000
4 1,00,000
5 1,10,000

Payback period of project A = Years Before Break-Even + (Uncovered Amount / Cash
Flow in Recovery Year)
= 2 years + (70000 / 85000)
= 2 + 0.82
Pay back period Of Project A = 2.82 years
Year Project B –Shoes
Net cashflow £
Cash flow Cumulative cash flow
0 -170000 0
1 45,000 45000
2 65,000 110000
3 82,000
4 98,000
5 1,10,000
Payback period of project B = Years Before Break-Even + (Uncovered Amount / Cash
Flow in Recovery Year)
= 2 years + (60000 / 82000)
= 2 + 0.731
Payback period of project B = 2.73 years
Figure out the value of Net Present Value of Akwaaba Plc
Net present Value : The calculation which help the investors or business firm to analyse
the variation between two values are called Net present value or NPV (Choi., 2020). The two
values are initial investment and cash inflow of present value (Erdakov., 2018).
Project A – Bags
Net cashflow £
Year Cash Flows PV Factor @ 14% Present Value
1 48,000 0.877 42096
2 62,000 0.769 47678
3 85,000 0.675 57375
4 1,00,000 0.592 59200

5 1,10,000 0.519 57090
Present value of Cash Inflow 263439
Net Present Value = Present value of cash inflow – Initial Cash investment
= 263439 – 180000
Net Present Value of project A = 83439
Project B –Shoes
Net cash flow £
Year Cash Flows PV Factor @ 14% Present Value
1 45,000 0.877 39465
2 65,000 0.769 49985
3 82,000 0.675 55350
4 98,000 0.592 58016
5 1,10,000 0.519 57090
Present value of Cash Inflow 259906
Net Present Value = Present value of cash inflow – Initial Cash investment
= 259906 – 170000
Net Present Value of project B = 89906
The above calculated results defines the importance of investment appraisal techniques
methods in future forecasting and planning on behalf of investments in any projects. All
organization need to generate more profit or at-least the value of amount which they invested in
the first. The Akwaaba Plc also uses this technique for analysing which project are better for
increasing the company goodwill and profit. It consist payback period and net present value for
comparing the these two projects of bags and shoes. The calculation of payback period resulted
that the company project is few times better than project because the value of bag project is 2.82
and the value of shoes project is 2.73. Hence, payback period consider only those project which
recover the investment in less time. The second method, net present value of both the project
interpretate that shoes project is good for business because NPV is amount is 6467 higher then

Project A. At last, it can be says that project B of shoes are good for the company by analysing
both the projects results as per the techniques of investment appraisal.
Elements effecting investment decision making
Financial factors:
 If the cost of particular goods increases endlessly then it automatically decreases the
volume of this product (Tiron-Tudor, Martin and Farcas., 2019). This practice is
generally known as rate of inflation.
 Loans and advance also effect the decision making or current or short term liabilities
because some bank and lender are charges more interest.
Non-financial factors:
 The main focus of the firm is to fulfil the needs of the customer without effecting their
social beliefs because they are the source of income and business growth. The company
Akwaana plc also trying to make a good social relationship which the potential customers
(Chytis, Tasios and Filos., 2020). Traditional behaviour and social analysis are the factors
which affect the business decision making.
 There are also a cost which help the company in selecting which project is good. This is
known as opportunity cost. Akwaaba Plc is also helpful form this techniques in
determining its capital framework.
CONCLUSION
As per the above report, it can be concluded that the company is helpful in generating
more profit or no loss when they uses some specific techniques for the business decision making.
Due to this the investment appraisal techniques and its two method are explained and calculated
with the help of given structure future outcomes. After this the best possible project are indicated
by the company that is project B because it fulfil the needs of business. It also explain the
financial and non – financial components which are useful in making judgement.

REFERENCES
Books and Journals
Carter, B.R. and Leard, J.T., 2021. Appraising Restaurants: Highest and Best Use
Analysis. Appraisal Journal. 89(4).
Choi, E., 2020. Modeling the combined environmental effects on net land carbon flux in the
present and future scenarios (Doctoral dissertation).
Christodoulides, P., Aresti, L. and Florides, G., 2019. Air-conditioning of a typical house in
moderate climates with Ground Source Heat Pumps and cost comparison with Air
Source Heat Pumps. Applied Thermal Engineering. 158. p.113772.
Chytis, E., Tasios, S. and Filos, I., 2020. The effect of corporate governance mechanisms on tax
planning during financial crisis: an empirical study of companies listed on the Athens
stock exchange. International Journal of Disclosure and Governance. 17(1). pp.30-38.
Erdakov, I.N., 2018. Computerized study of intense deformed state of grinding plate of high-
manganese steel. In Solid State Phenomena. (Vol. 284. pp. 563-567). Trans Tech
Publications Ltd.
Ji-chao, Y. and Sobhani, B., 2021. Integration of biomass gasification with a supercritical CO2
and Kalina cycles in a combined heating and power system: A thermodynamic and
exergoeconomic analysis. Energy. 222. p.119980.
Parikh, M., 2018. Assessing energy savings and payback period for ECBC 2017.
Tiron-Tudor, A., Martin, D.L. and Farcas, T.V., 2019. Corporate Reporting Practices
Concerning Non-financial Aspects: A Possible Prolix?. In Integrated Reporting (pp.
241-263). Springer. Cham.