Decision Making For Business And Finance

Introduction

In the context contemporary business environment, companies take a variety of long and short term strategic decision that influences their investment in different assets and project to enhance the operational efficiency. For analysing different investment proposals, financial managers consider a wide range of tools related to investment appraisal so as the amount of risk and profitability of investment could be examined (Verma & Saxena, 2021). This report is going to evaluate the application of different approaches of investment appraisal with reference to case of Wylde Green Limited in which the business entity is looking to manage a significant investment in the acquisition of new machine. Also, seeking business dissertation help can provide the most valuable insights into strategic decision-making processes and investment appraisal techniques.

Section 1

a. Net Present Value

It is considered the most common approach that is used in the investment appraisal. This method contains a certain discount rate through which the net present value of the future cash inflow and outflow is examined to assess the overall profitability of the investment (Harris, Hoang & Ngan, 2017). The higher net present value shows the better returns to investors. In the present case of Wylde Green Limited, the net present value of existing machine and new machine is respectively £837,000 and £819,000. Therefore, old machine offers the better returns in terms of net present value. Moreover, the weighted average cost of capital (WACC) is being termed as discounting factor for future cash-flow within the net present value. In the context of present case, the cost of capital has been considered near to 12% in the case of Wylde Green Limited.

b. Accounting rate of return

The accounting rate of return is being termed as important accounting technique for measuring the profit from certain investment. This tool is used to express the net accounting profit that is associated with the investment as a percentage of capital investment (Baum, Crosby & Devaney, 2021). It also perceives as the measure of the return on capital. As per the data provided in current case, the account rate of return is near to 5.5% that is higher than expected account rate of return of the business entity.

c. Payback period

In the context of investment planning, the payback period is being termed as the most important tools for evaluating the risk factors in different investment options. This method is used to determine time period in which an organisation can recover the whole initial investment. This method assists companies in estimation of expected time duration of different investment options so as an organisation could consider the most suitable investment option (Alkaraan, 2017). In the context of present case, the payback period of machine has recorded near to 3.5 years that is lower than required payback period.

d. Most useful financial appraisal tool

As per the above evaluation and comparison of different approaches of investment appraisals, the net present value has been addressed as the most useful financial appraisal tools because this tool determines the present value of future profitability with reference to a certain discount rate which is aligned with cost of capital, interest rate, inflation rate and other market indicators (Siziba & Hall, 2019). Moreover, it also represents the time value of money.

Section 2

a. In the context of Wylde Green Limited, the financial data associated with the proposed investment plan in new machine as well as old machine has disclosed that the management of Wylde Green Limited should acquire the new machine rather than enhancing service life of existing machine (Michelon, Lunkes & Bornia, 2020). This is because new machine will offer the better accounting rate of return of 5.5% as compared to required rate of 5% that may have a significant influence over the future business profitability and production capabilities. Moreover, the proposed investment in new machine will be recovered in 3.5 years that is lower than the expected payback period of 4 years. Therefore, the management should purchase the new machine for enhancing the business capabilities.

b. For supporting the financial and investment decision making in the current case of Wylde Green Limited, the management should calculate the internal rate of return and profitability index for analysing the profitability and risk factor in different investment proposal. These two methods have been found very effective to support the investment decisions for selection of the most suitable investment option (Chung, 2019).

c. As per the case of Wylde Green Limited, it has addressed that company is looking to adopt some green initiatives for lowering its carbon emission in which the existing machine Wylde Green Limited encourages the pollution but the new machine which has been identified the management of Wylde Green Limited is the emission free. Therefore, the new machine will be found very useful to control the emission of green house gases along with other pollutants.

In the present investment proposal, the lead time in repair and maintenance would be emerged as an important area of concern because the breakdown in new machine will stop the production process (Siziba & Hall, 2019). Therefore, the lead-time has been termed as key factor that may influence investment decision in the present case.

The change in the production capacity would be addressed as an important factor that influences the investment decisions in new machine. This is because the acquisition of new machine will increase overall production capabilities (Michelon, Lunkes & Bornia, 2020).

The cost of production would play a critical role in encouraging the purchase decision. It may have direct impact on the profitability of companies.

In the context of financial and investment planning, the economic conditions of country has been identified as key area of concern because it influences the cost of capital, market demand, and others.

Conclusion

As per the above assessment, this report concludes that the management of Wylde Green Limited should purchase the new machine rather than retaining the existing machine. This is because the new machine will recover the initial investment in very less time period as compared to expected time duration. Moreover, it would offer better returns to business because it would enhance the production capacity up to 10000 units in near future. Furthermore, the new machine will help the business entity in attainment of emission control objective because it will come with emission free operations. Apart from that, the management should examine the investment with consideration of some other tactics such as internal rate of return and profitability index before making final decisions.

Reference

Alkaraan, F. (2017). Strategic investment appraisal: multidisciplinary perspectives. In Advances in Mergers and Acquisitions. Emerald Publishing Limited.

Baum, A. E., Crosby, N., & Devaney, S. (2021). Property investment appraisal. John Wiley & Sons.

Chung, I. H. (2019). Does the budget process matter for infrastructure spending? Capital budgeting in local government. Public Money & Management, 39(3), 193-200.

Harris, E., Hoang, T., & Ngan, G. (2017). Accounting for capital investment appraisal: time for a radical change?. In The Routledge Companion to Accounting Information Systems (pp. 173-189). Routledge.

Michelon, P. D. S., Lunkes, R. J., & Bornia, A. C. (2020). Capital budgeting: a systematic review of the literature. Production, 30.

Siziba, S., & Hall, J. H. (2019). The evolution of the application of capital budgeting techniques in enterprises. Global Finance Journal, 100504.

Verma, S., Mandal, S. N., Robinson, S., Bajaj, D., & Saxena, A. (2021). Investment appraisal and financial benefits of corporate green buildings: a developing economy case study. Built Environment Project and Asset Management.

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