An Essay On Business Decision Making Process

An essay on business decision
making process
Student name
Course no
Contents
Student name..............................................................................................................................................1
Course no....................................................................................................................................................1
Introduction.................................................................................................................................................1
Overview of Akwaaba plc............................................................................................................................2
The business decision-making process........................................................................................................2
Capital budgeting techniques......................................................................................................................2
Payback period:.......................................................................................................................................3
The calculation for NPV:..........................................................................................................................4
Conclusion...................................................................................................................................................4
Reference....................................................................................................................................................4
Introduction
A firm has to gain some long-term investments to run the firm properly without risking the
assets. Long-term investments of a firm represent sizeable outlays of funds that proceed the firm
to do some course of action. But a firm needs various procedures to analyze and select its long-
term investments properly. (RCNi launches decison-making tool, 2018) The chief financial
officer of any firm has to be very careful about which investment can bring profit to his firm and
how sustainable the profit is. The CFO must be able to measure cash flows and he has to apply
the correct decision technique. The capital budgeting decision process is the process of
evaluating and selecting an investment in the long run that can be consistent and can help to
achieve the firm’s goals. In this essay, we are going to portray a business decision-making
process that is related to Akwaaba plc.
Overview of Akwaaba plc

Akwaaba plc is a branded textile company that has huge shares and has been a reputed
organization since its establishment. The company is operating in the European counties since its
birth and has placed its head office in the heart of the United Kingdom. Recently, Akwaaba plc is
having some trouble with its suppliers and resources. (Hashem, 2018) The main productions of
the company's shoes and bags have been outsourced rather than produced because of a lack of
raw materials and resources. In this situation, the strategic manager of Akwaaba plc has decided
to invest in bags or shoes. After doing a thorough discussion they have concluded two projects
using the managers' discretion. They also had made an initial investment budget for both projects
and tried to find a solution to decide which will be the better investment.
The business decision-making process

The capital budgeting process has five different and important steps that need to be followed by
every financial officer. These are-
1. Proposal generation: here, the managers have made two proposals on two different
projects and gave an initial budget for these projects.
2. Review and analysis: after getting the full view of the proposals the financial officer's
committee reviews the proposals and analyzes the possibilities of two different proposals.
3. Decision making: next the committee has to delegate capital expenditure decision-
making based on dollar limits. The board of directors must authorize the expenditure
amount.
4. Implementation: if one of the projects gets approval from the board the expenditures are
made and the project is implemented.
5. Follow-up: finally, the projects are monitored and the costs and benefits are compared
with the expected amount.
Capital budgeting techniques

In the case of Akwaaba plc to make a decision regarding which investment should be taken the
board has to follow some techniques such as counting the payback period, calculating the net
present value of the investment, and having to compare these two projects to make sure which
one gets approval. The firm has to analyze these two projects to assess whether a project is
acceptable or to rank them in order. Here we have calculated the payback period and the net
present value of the two major projects-
Payback period: it is commonly used in many organizations to evaluate proposed
investments. The payback period is the amount of time needed for a firm to recover the initial
investment in a project. It is calculated from cash inflows. (Kessler, 2017) Now to decide on this
calculation one firm has to follow these steps.
 If the payback period is less than the acceptable payback period then the project can be
accepted
 If the payback period is more than the acceptable payback period then the project needs
to be rejected
We can calculate the payback period for Akwaaba plc’s projects A and B using the data given in
the table below-
year Project A Project B

1 48,000 45000
2 62000 65000
3 85000 82000
4 100000 98000
5 110000 11000
For project A the initial investment is 180000 and for project B the initial investment is
170000.
For project A the payback period is-
Cash flow Cumulative cash flow

Year 0 (180,000) (180,000)
Year 1 48,000 (132,000)
Year 2 62000 (70,000)
Year 3 85000 15000
Year 4 100000 115000
Year 5 110000 225000
At end of 2 year (70,000/ 85000)=0.823
The payback period for project A is 2.823 years
For project B the payback period is-
Cash flow Cumulative cash flow

Year 0 (170,000) (170,000)
Year 1 45,000 (125,000)
Year 2 65000 (60,000)
Year 3 82000 22000
Year 4 98000 120000
Year 5 110000 230000
At the end of year 2 (60000/82000)= 0.731
discount rate 14%
Cash flows project A cash flows project B

year 0 -180,000 year 0 -170,000
year 1 48,000 year 1 45,000
year 2 62000 year 2 65000
year 3 85000 year 3 82000
year 4 100000 year 4 98000
year 5 110000 year 5 110000
net present value of net present value of

project A $209,386.08 project B $214,545.16
The payback period for project B is 2.731 years.
The calculation for NPV:

After the calculation we found that the NPV of Project B is higher than the NPV of project
A. here project B would be considered superior to project A because it has a higher net
present value than that of project A. also, the project B has a lower payback period than
project A. so, it can be said that Akwaaba plc should invest on project B as the investment
has more potential than the prior one.
Conclusion
In this essay, we have discussed various financial and non-financial factors that have a great
impact on capital budgeting decisions. Companies like Akwaaba plc should consider these
factors and techniques while making any investment decision. It will help the financial
officers to make a profitable investment and gain revenue in less time. However, the risk of
taking these investments should also be considered so that the firm does not face any trouble
that can not be solved easily.\
Reference
Primary Health Care, 2018. RCNi launches decison-making tool. 28(6), pp.7-7.
Hashem, A., 2018. THE EFFECT OF STRATEGIC DECISION MAKING TOOLS ON

RATIONALITY OF DECISION MAKING PROCESS. International Journal of
Business Strategy, 18(1), pp.11-28.
Berkovitch, E. and Israel, R., 2003. Why the NPV Criterion does not Maximize
NPV. Review of Financial Studies, 17(1), pp.239-255.
Kessler, W., 2017. Comparing energy payback and simple payback period for solar
photovoltaic systems. E3S Web of Conferences, 22, p.00080.

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An essay on business decision

Overview of Akwaaba plc

The business decision-making process

Capital budgeting techniques

year Project A Project B

For project A the payback period is-

Cash flow Cumulative cash flow

The payback period for project A is 2.823 years

For project B the payback period is-

Cash flow Cumulative cash flow

discount rate 14%

Cash flows project A cash flows project B

net present value of net present value of

The payback period for project B is 2.731 years.

The calculation for NPV:

Hashem, A., 2018. THE EFFECT OF STRATEGIC DECISION MAKING TOOLS ON

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