Business Decision Making
Student name: Alexandru Alin Dinca
Student ID: C100048725
Business Decision Making
Introduction
Business decision-making is referred to as the most essential process to be done significantly to
make business activities effective. This process includes various stages to perform which
highlights the ability of a business in implementing business decisions in a more effective manner.
Some of the processes of business decisions include payback and NPV. Therefore, this essay will
conduct a detailed analysis of the calculation for the reputed plc PD will be identified. It is possible
the decision-making process of a business can get effectively influenced by financial and non-
financial factors which will be more identified.
Page 2 of 11
Business Decision Making
Discussion
A financial term called the payback time estimates how long it will take an investment to produce
enough cash flows to cover its initial cost. By dividing the original investment by the yearly cash
flows generated by the investment, it is determined (debitoor, 2023). Businesses must carefully
consider the payback period when determining the profitability and risk of an investment.
Businesses that prioritise short-term profits may choose a shorter payback period since it means
the initial expenditure will be recovered more quickly. On the other hand, a longer payback period
could signify more risk or a longer length of time before realising returns. A payback period is a
helpful tool for making decisions, evaluating risks, and allocating cash in investment projects.
Project A
0 -98000 -98000
1 32000 -66000
2 41000 -25000
3 63000 38000
4 96000 134000
Page 3 of 11
Business Decision Making
5 110000 244000
A: Negative cash flow of the business entity from previous transactions
B: Positive flow of money after the end of the negative cash flow of the investment
C: Negative flow of cash before positive cash flow can be seen
The formula of payback is = [A+(C/B)] which can be implement to produce the calculation as 3rd
years+ (£25000/ £63000) x12 months = 3rd years and 4.76 months. Therefore, this is reflecting
that the actual rate of the payback period for the particular project A can be seen as 3rd years and
4.76 months. This means that the company is needed around 3rd years and 4.76 months for the
sake of generating its invested amount out of the business (Marshall, 2023).
Project B
0 -102000 -102000
1 30000 -72000
2 41000 -31000
Page 4 of 11
Business Decision Making
3 64000 33000
4 107000 140000
5 112000 252000
Now, the effective formula of the payback period will be ascertained for the sake of identifying
the payback value for project B. Hence, in order to calculate the payback period, the same formula
will be used which has been used for project B effectively. [A+(C/B)] = 3rd year +(£31000/£64000)
x 12 months =3rd years and 5.81 months. Therefore, for project B the result has been effectively
identified as 3rd years and 5.81 months (lardbucket, 2023). Based on the above calculation of
both project's outcomes the respective company PD plc is recommending taking into consideration
project A as it is efficient in generating the money back in just 4.76 months (github, 2023).
A financial metric called Net current Value (NPV) deducts an investment's upfront cost from the
current value of its anticipated future flows (Girardin, 2023). Its importance is in helping firms
assess an investment's worth and profitability by taking the time value of money into the account.
While a low NPV could imply a lack of profitability, a positive NPV implies prospective
profitability.
Project A
Page 5 of 11
Business Decision Making
Year Cash Inflow for Products Discounting factor (7%) PV
0 -98000 1 -98000
1 32000 0.934 29888
2 41000 0.873 35793
3 63000 0.816 51408
4 96000 0.762 73152
5 110000 0.713 78430
Total PV 268671
As per the above the final value of the can be identified as (268671-98000) = £170671.
Project B
Year Cash Inflow for Products Discounting factor (7%) PV
Page 6 of 11
Business Decision Making
0 -102000 1 -102000
1 30000 0.934 28020
2 41000 0.873 35793
3 64000 0.816 52224
4 107000 0.762 81534
5 112000 0.713 79856
Total PV 277427
As per the above the final value of the can be identified as (277427-102000) = £175427.
Now, the overall outcome can be observed which includes how much money will be recovered by
both projects in what time period. Therefore, the first project, project A will require around 3 years
and 4.76 months the sake of generating approximately £ 170671. On the other hand, project B
will require time to recover the money around 3 years and 5.81 months for the sake of generating
approximately £ 175427. This is reflecting the level of efficiency for generating money is higher
for the specific project B which can be recommended to PD plc to be taken into consideration
(Chang, 2023).
Page 7 of 11
Business Decision Making
Both financial and non-financial aspects are taken into account during the investment decision-
making process. Financial considerations are quantitative measurements that offer signs of an
investment's prospective profitability and assist evaluate its feasibility and future performance.
Examples include predicted returns, levels of risk, and cash flow estimates. On the other hand,
non-financial criteria are qualitative elements including long-term sustainability, moral principles,
and social, governance, and environmental issues (Manjenje and Muhanga, 2023). These elements
may affect an investment's standing and operational performance, which may affect its viability
along with risk exposure. A company's brand reputation and financial performance, for instance,
may be impacted by labour practises, governance practises, and community relations, much as
climate change can have an influence on sectors like petroleum and coal, agriculture, and real
estate. Investors may make educated decisions that are in line with their financial goals, tolerance
for risk, and opinions by taking into account both financial and non-financial aspects, as well as
the possible effects of their investments on other stakeholders as well as society at large (Dai et
al., 2022).
Page 8 of 11
Business Decision Making
Conclusion
The above study has developed two different types of investment appraisal processes with the
motive to understand the investment decision of PD plc. The primary focus of the development of
these two computations is to provide a detailed image to the specific company about the return on
investment so they can come up with the effective selection of any one project. Now, the
computations have been made and the outcome is suggesting that the business entity can choose
to project A to use. Moreover, the importance of the financial and non-financial aspects has been
introduced.
Page 9 of 11
Business Decision Making
References
Chang, K.P., (2023). Internal Rate of Return, Profitability Index and Payback Period Methods.
In Corporate Finance: A Systematic Approach (pp. 59-69). Singapore: Springer Nature Singapore.
Dai, H., Li, N., Wang, Y. and Zhao, X., (2022), March. The Analysis of Three Main Investment
Criteria: NPV IRR and Payback Period. In 2022 7th International Conference on Financial
Innovation and Economic Development (ICFIED 2022) (pp. 185-189). Atlantis Press.
debitoor, (2023). Payback period. [Online] Available at: https://debitoor.com/dictionary/payback-
period [Accessed 17 April 2023].
Girardin, M., (2023). How to Calculate Net Present Value (NPV). [Online] Available at:
https://www.theforage.com/blog/skills/npv [Accessed 15 April 2023].
github, (2023). 8.4 Other Factors Affecting NPV and IRR Analysis. [Online] Available at:
https://saylordotorg.github.io/text_managerial-accounting/s12-04-other-factors-affecting-npv-
an.html [Accessed 15 April 2023].
lardbucket, (2023). 13.2 Payback Period. [Online] Available at:
https://2012books.lardbucket.org/books/finance-for-managers/s13-02-payback-period.html
[Accessed 16 April 2023].
Manjenje, M. and Muhanga, M., (2023). Financial and Non-Financial Incentives Best Practices in
Work Organisations: A Critical Review of Literature. Journal of Co-operative and Business
Studies (JCBS), 6(2).
Page 10 of 11
Business Decision Making
Marshall, H. E., (2023). Payback (PB). [Online] Available at:
https://link.springer.com/chapter/10.1007/978-1-4757-4688-4_7 [Accessed 16 April 2023].
Page 11 of 11
