You are required to write an essay on business decision making, comparing the key aspects of the tools like the payback period and NPV, and financial and non-financial factors used to aid decision making
TASK DESCRIPTION: Assignment (Individual Essay) 30%
|
ABA plc is a branded cycle company, operating in the UK and some parts of the Europe. Currently, some of their productions such as electric cycles and electric scooters have been outsourced due to lack of available resources. However, strategic managers of ABA plc are looking to invest in a project manufacturing electric cycles or electric scooters. They have called new business proposals and have finally, chosen two projects using managers’ discretion to make final decision. Initial investment required for project A (electric cycles) is £140,000 and for project B (electric scooters) is £180,000. The discount rate required is at 16%. The net cash flows for two projects can be summarized as below:
Year
|
Project A – Electric Cycles Project
Net cashflow £
|
Project B –Electric Scooters Project
Net cashflow £
|
1
|
35,000
|
46,000
|
2
|
40,000
|
55,000
|
3
|
45,000
|
60,000
|
4
|
80,000
|
80,000
|
5
|
92,000
|
100,000
|
You are required to write an essay on business decision making, comparing the key aspects of the tools like the payback period and NPV, and financial and non-financial factors used to aid decision making.
1000 words maximum.
Please note the following when completing your written assignment:
- Writing: Written in English in an appropriate business/academic style
- Focus: Focus only on the tasks set in the assignment.
- Ensure a clear title, course, and name or ID number is on a cover sheet and a bibliography using Harvard referencing throughout is also provided.
- Research: Research should use reliable and relevant sources of information e.g. academic books and journals that have been peer reviewed. The research should be extensive.
- All referencing should be in Harvard style.
Template
Introduction (75-100 words)
The payback period
-explain what is the payback period (1 reference)
Project A
Year
|
Project A – Electric Cycles Project
Net cashflow £
|
Cumulative £
|
1
|
35,000
|
35,000
|
2
|
40,000
|
75,000
|
3
|
45,000
|
120,000
|
4
|
80,000
|
|
5
|
92,000
|
|
The initial investment for Project A is £ 140,000
140,000 – 120,000 20,000
12 3 months
The Payback period for project A is 3 years and 3 months
Project B
Year
|
Project B –Electric Scooters Project
Net cashflow £
|
Cumulative £
|
1
|
46,000
|
46,000
|
2
|
55,000
|
101,000
|
3
|
60,000
|
161,000
|
4
|
80,000
|
|
5
|
100,000
|
|
The initial investment for Project B is £180,000
180,000 – 161,000 19,000
12 2.85 months
The Payback period for project B is 3 years and 2.85 months
The Net Present Value (NPV)
-explain what is the NPV (1 reference)
Project A
Year
|
Project A – Electric Cycles Project
Net cashflow £
|
Discount factor
at 16%
|
Present value (PV) £
|
1
|
35,000
|
0.862
|
30,170
|
2
|
40,000
|
0.743
|
29,720
|
3
|
45,000
|
0.641
|
28,845
|
4
|
80,000
|
0.552
|
44,160
|
5
|
92,000
|
0.476
|
43,792
|
Total PV 176,687
NPV 176,687 – 140,000
NPV 36,687
Project B
Year
|
Project B –Electric Scooters Project
Net cashflow £
|
Discount factor at 16%
|
Present value (PV) £
|
1
|
46,000
|
0.862
|
39,652
|
2
|
55,000
|
0.743
|
40,865
|
3
|
60,000
|
0.641
|
38,460
|
4
|
80,000
|
0.552
|
44,160
|
5
|
100,000
|
0.476
|
47,600
|
Total PV 210,737
NPV 210,737– 180,000
NPV 30,737
Analysis
Having looked at only payback period – Decision ?
Having looked at only NPV – Decision ?
The final decision and explain why?
Financial Factors - in general (not related at this case study)
Only 3 factors:
Inflation rate (1 reference)
Interest rate (1 reference)
Initial investment (1 reference)
Non-Financial Factors - in general (not related at this case study)
Only 3 factors :
Environmental (1 reference)
Social (1 reference)
Brexit (1 reference)
Conclusion
References (8 in Harvard style-add also the link)
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