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%

TASK

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.

LENGTH REQUIRED

1000 words maximum.

FORMATTING AND LAYOUT

Please note the following when completing your written assignment:

1. Writing: Written in English in an appropriate business/academic style
2. Focus: Focus only on the tasks set in the assignment.
3. 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.
4. 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.
5. 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)