Business Finance
Business Finance
The payback system is the type of analysis used to calculate cash flow, and it can address some questions like investment taxes, acquisitions and action to pay them. Let us consider the case flow based on the job, which will be get covered for the employment that I currently have.
Consider payback period = Y + (A/B)
Y = Number of years before the payback years, Y = 3.0 YEAR
A = Total remaining to be paid back of break every year, A = $50
B = Net paid back in every year, B = 300
Payback period = 3+ (50)/ (300) = 3.17 years
The payback is analyzed by cash inflows, cash outflows and cumulative cash flow includes investments like buying computer set, tables etc. The Net cash flow is the sum of Cash inflow + cash outflow. I was clear from the above table that the payback occurs in year 4, because the cumulative cash flow stays positive in year 4 and year 5. Remaining years other than year 4 and 5 has negative cumulative CF as payback does not take place. The investment is paid back in the year 4 and 5.
Qualitative Approach for Decision Making
The quantitative approach is based on the numerical approach and qualitative is based on the non numerical terms. The quantitative investments like one time purchase of products, investment in asserts etc. The qualitative approach is based on the capital investment like safety, environmental concerns, ethics, and company culture. The capital investment can have an impact on the company culture, because the way of working in the company plays a major role in the capital investments for example communication flow between the teams. The capital investment has an impact on environment, managers has to consider spending cash on environmental concerns like buying trucks etc. The capital investment has to be increased to produce quality goods. Managers have to consider ethical aspects like safety of labor, local employment, and air quality. The capital investment has an impact on ethics.
Quantitative Approach for Decision Making
The quantitative cash flow has an impact on managerial decision making, which includes decision on accounting rate return, payback period, net present value and the initial rate of return. In case of quantitative considerations the payback cash flow has a risk while the return on original investment takes much time so the managers have to set a time period on a particular project. Completing project within a targeted time can bring the original investment in time. To have a good net return value it will be good to select a suitable project among investment that perform same tasks or achieve the same objective.
References
1.Qualitative factors in decision making, (2013), Retrieved Jan 24, 2014, from http://smallbusiness.chron.com/qualitative-factors-capital-investment-decisions-73769.html
2. Payback period explained. (2013), Retrived Jan 24, 2014, from http://www.business-case-analysis.com/payback-period.html
