Business Decision Making Assessment - ABC Plc

TASK

Business decision making

Whenever firm plans to invest in any project then first it has to determine the suitability and feasibility of that project so that entity can determine where it would be right decision or not.

NPV (Net present value)

This is considered as most common technique that evaluates future cash flow that can be generated by business by investing in current project (Wijne and et.al., 2019). It calculates actual difference between present and future value of cash flow and accordingly investment manager makes decision of investment in particular project. This is appropriate method as it helps in determining value of investment and also considered time value of money. ABC Plc has two options of investment in the first option value of NPV is found 17831 whereas in second project NPV is 24430. That reflects that investment in project 2 would be best option for ABC company.

As return on investment is high in this project. As in project 1 cash inflow for 1^st year is 8000 an for 2^nd year is 12000, 3^rd year it is 16000 and for next two years it is 20000 and 30000. Discounted rate is 12% and initial investment in this project is 40000. After calculating NPV it is found that value of NPV is 17831. On other hand cash in project 2 for next 5 years are 10000, 20000, 25000, 30000, 40000. Initial investment in project2 is 60000 hence value of NPV in this project 2 is 24430 (Chaysin, Daengdej and Tangjitprom, 2016). Hence this reflects that future value of cash flow would be high in project 2 hence ABC strategic managers has to make investment in this project in order to get more return.

Project 1

Project 2

Payback period

This is another most popular investment appraisal technique which is also known as capital budgeting tool, that helps in determining actual feasibility of project (Fokkema, Buijs and Vis, 20170. Many time investors prefer to invest in project in which cost can be recovered soon. Hence this method calculate the period in which actual investment can be recovered soon. As in the project 1 cost can be recovered in 3 year 7 months and in project 2 it can be recovered within 3 year 5 months. Though there is not much difference between project but still investment in project 2 would be better as entity will easily recover all the investment cost with 3 year and 5 months (Types of Financial Decisions in Financial Management, 2020).

Are you looking for help with change management case study? Global Assignment Help Australia will provide you with change management case study help. Our writers will provide you with professionally written work so that you will receive a high grade.

Project1

Project 2

There is need to take care of financial and non-financial factors that may help business in making correct decision for the growth of organisation. It is essential for ABC that to risk involved in investments and type of ownership otherwise it will not be able to generate profit from investments. Opportunity cost must be taken care by company while planning for decision making as if entity wants to invest some amount for the further development then it has to ensure that it control over the opportunity cost otherwise owner may face difficulty. Cash flow positon of business is another financial factor that needs to be taken care, if financial positon of organisation is not good then it will not be able to get profit.

On other hand ABC Plc needs to ensure taking care of non-financial factor as well such as management team, skills of employees, brand image of organisation (Types of Financial Decisions in Financial Management, 2020). This would be better for the firm in gaining success in market and getting more return over its investments. Preferences of shareholder is another most important element that can influence business success, whenever company plan to make investment then company has to ensure that it becomes able to meet needs of all the stakeholders such as employees, investors etc. For example, employees and other stakeholders like to get dividend hence entity will have to take decision in such manner so that it can be in positon of providing adequate dividend to all the stakeholders successfully.

Students Also Ask For - Assessment Help Australia

CONCLUSION

From the above study it can be concluded that business decisions are most essential part of organisation hence manager of company needs to take care pf financial and non-financial factors while making any judgement for the welfare of organisation. This may help enterprise in gaining success. Payback period and NPV help the strategic manager in analysing viability of project and investing h=amount in the right project so that more profit can be generated.

You Can Also Check More Related Samples - 

Understanding Role of Financial Management in Business Entities

BM414 Importance of Finance and Accounting

Financial Analysis for Next Plc and Marks & Spencer