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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)


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