Finance Factors of X plc

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

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Project B

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.

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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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