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Finance Factors of X plc

University: University of Suffolk

  • Unit No: N/A
  • Level: High school
  • Pages: 8 / Words 2012
  • Paper Type: Assignment
  • Course Code: N/A
  • Downloads: 106
Question :

This assessment will cover the following questions:

  • Finance is the term that is used to influence the management of the organisation and helps in the study of money and investments.
  • You are needed to provide an essay on business decision-making by covering the payback period and NPV, and financial and non-financial factors used to help in the decision-making.
Answer :
Organization Selected : X plc

INTRODUCTION

Finance is referred as the broader term that describes study, system of the investments, money and the other finance related instruments. In other words, it means managing money involving an activity such as borrowing, budgeting, saving, lending and forecasting. The present study is based on X plc, reputed company dealing in manufacturing the parts of the vehicle in UK and parts of Europe. Furthermore, the report highlights the computation of payback and the net present value of the two projects. Moreover, the study presents the financial and the non-financial factors that are to be considered while selecting the best project.

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Evaluating the decision relating to most suitable project

Net present value- It is been defined as present value of all the future cash flows in relation to a particular investment project. This capital budgeting technique helps in evaluating an investment or the project in which firm is planning to invest it money (Roy and Hota, 2017). Positive or greater net present value reflects that the profits is profitable, however, negative or lower NPV depicts that the proposal will incur losses to an organization.

Payback period- It means the method that evaluates a time period within which the company will be recovering its initial outlay cost. The investments that contains even cash flows are calculated by dividing initial investment cost with that of annual cash flows (Chadha and Sharma, 2019). Longer the payback period, means that the project will take longer time in covering its initial cost while shorter payback reflects that short time period is been taken to recover initial outlay (Maáji and Barnett, 2019).

Project A

Technological project

 

 

 

Year

Cash inflows

Discounting factor

Discounted cash flows

1

8000

0.91

7272.73

2

10000

0.83

8264.46

3

12000

0.75

9015.78

4

15000

0.68

10245.20

5

19000

0.62

11797.51

 

Sum of discounted cash flows

 

46595.67

 

less: Initial investment

 

20000

 

Net Present Value

 

26595.67

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Year

Cash inflows

Cumulative cash inflows

1

7272.73

7272.73

2

8264.46

15537.19

3

9015.78

24552.97

4

10245.20

34798.17

5

11797.51

46595.67

Initial investment

 

20000

Payback period

 

2

 

 

0.5

Payback period

 

2 Years and 5 months

Project B

Mechanical Project

 

 

 

Year

Cash inflows

Discounting factor

Discounted cash flows

1

10000

0.91

9090.91

2

15000

0.83

12396.69

3

17000

0.75

12772.35

4

19000

0.68

12977.26

5

20000

0.62

12418.43

 

Sum of discounted cash flows

 

59655.6

 

less: Initial investment

 

30000

 

Net Present Value

 

29655.6

Year

Cash inflows

Cumulative cash inflows

1

9090.91

9090.91

2

12396.69

21487.60

3

12772.35

34259.95

4

12977.26

47237.21

5

12418.43

59655.64

Initial investment

 

30000

Payback period

 

2

 

 

0.7

Payback period

 

2 Years and 7 months

From the above analysis, it has been observed that project B tends to be more profitable as compared to project A. This means that X plc must make investment in mechanical project as its Net present value is greater resulting as £ 29655.6 than the technological project's NPV as £ 26595.67. This clearly shows that project B will generate higher profitability for X plc than project A as high NPV seems as better performance of the proposal or better option for the firm to choose or invest in. Moreover, Payback period of project B is similar or very close to project A as 2 years 7 months and 2 years 5 months which means that X plc should invest in project B as it will take very less time or only 2 years & 7 months in covering the initial investment (Lin, Huang and Wei, 2018). These measures acts as the financial factors which the firm needs to focus on for making best possible decisions with respect to desirability, feasibility and profitability of the project.

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Although financial factors are counted as vital for the company in its process of decisions making but there are several non-financial measures that also plays a critical role in the selection of the most suitable project (Gupta and Sharma, 2017). The non-financial factors that need to be taken into account by X plc in order to make suitable business decisions includes meeting with the requirements of the future and the current legislation, matching an industry standards and the good practices, improving the morale of the staff that makes it easier in recruiting and retaining the best talent at the workplace (Saleheen and et.al., 2017). Attaining improved relationship with the customers and the suppliers plays a crucial role for the business at the time of making investment decisions in respect of selecting the most viable project. X plc also has to look towards improving its brand reputation and the relationships with its society and the local community at the time of making the business decisions with regards to investing or selecting the proposal. Developing capabilities of the business like building experience and the skills in the new areas or in strengthening the systems of the management. It is also considered as very essential non-financial factor that needs be emphasized by X plc for deciding the best project that is the mechanical project (Non-financial factors, 2018). While seeking for choosing the most suitable investment proposal, X plc needs to take care about the most crucial measure that is dealing and coping up with the future threats like preventing or protecting the IPR rights against a potential competition.

Thus, by choosing or by making investment in the project B which is a mechanical project, X plc could be able to balance financial as well as the non-financial factors effectively and efficiently. This is because if the project will generate higher profits, the company can automatically create better relations with its customers, society and suppliers. This in turn enhances the reputation of the company in the overall market or industry against its competitors.

CONCLUSION

By summing up the above report, it has been identified that mechanical or project B is counted as profitable investment for X plc and it helps the company in achieving growing success in the future. It also enables the firm in dealing with non-financial factors appropriately in order to gain a leading position in the market.Looking for assignment help? Take help from our experts writers.

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