Decision Making As a Critical Part of Good Management Essay

Decision Making As a Critical Part of Good Management - Essay Example This report is based on certain scenarios of NENE, Benjamin and Peters Limited that are faced with different situations and require financial decision making on the choice of project, company evaluation as well as production decisions. The report will use financial calculations of various business analysis tools to help with the decision making. The report will be confined to the information provided in the particular case studies when making decisions. Other outside sources such as books and journals are also used to reinforce certain calculations, principles and analysis tools when making decisions concerning particular case studies. Alpha Payback period: 2 years (representing the year just before the cumulative cash flow becomes positive) + 31/38 (representing the remaining period for the project to achieve the zero cumulative cash flow amount). Therefore, the Payback period for project Alpha will be 231/38 years or 2.82 years. Beta Payback period: 3 years (representing the last year where the cumulative cash flow is still negative) + 5/35 (representing the proportion of years left for the last negative cash flow amount to become zero). Therefore, the Payback period for Beta project will be 3 5/35 years or 3.14years. The Average annual Operating profit is calculated by adding up all the operating profits provided for the six years period and dividing by the number of years. This comes to (205,000 / 6) = 34, 167.7 equivalent to 34,200 pounds. But this is the amount of depreciation. With the annual depreciation rate being 18,000 (100,000 – 10,000) / 5 = 18,000 pounds, the average annual operating profit will be the average annual profit minus depreciation. Which is 16,200 (34,200 – 18,000). This is the amount of depreciation. To advise NENE Limited on the most appropriate project to undertake, all the four appraisal methods must be evaluated. To begin with, using the cash flows of the two projects, it is vividly clear that that project Alpha seems a good project as it has more cash flow ( £105,000) than project Beta ( £83,000).  Ã‚