Please Note this involves some calculations.
KGM plc is a branded textile company, operating in the UK and some parts of the Europe. Currently, some of their productions such as bags and shoes have been outsourced due to lack of available resources. However, strategic managers of KGM plc are looking to invest in a project manufacturing bags or shoes. 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 (bags) is £180,000 and for project B (shoes) is £170,000. The discount rate required is at 14%. The net cash flows for two projects can be summarized as below:
Year Project A – Bags
Net cashflow £ Project B –Shoes
Net cashflow £
1 48,000 45,000
2 62,000 65,000
3 85,000 82,000
4 100,000 98,000
5 110,000 110,000
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.