BUSINESS DECISION MAKING

Business Decision Making

Business Decision Making

Task 1

The following questionnaire has been constructed to find out some information about the users of Burwash public library. There are some errors in this questionnaire. Read through and see how many you can find.

1

How often do you use the services offered by the library?

2

How many books or publications have you borrowed from the library?

0

1-5

5-10

10-15

20-50

50-100

3

The last time you visited the library, what was the purpose of your visit?

Search for a book

Search for a periodical

Get information from a librarian

Study peacefully

4

Were your needs satisfied?

Yes/No

5

How satisfied are you with the quality provided by the library and the attitude of the library staff?

1 2 3 4 5

6

What do you dislike about the library?

7

Are there any improvements that could be made to the library to provide a better service?

Yes/No

8

Do you approve or disapprove of the recent proposals made by the Library Management Committee, such as the proposal to double fines for overdue books?

Approve/Disapprove

9

Are you aware of these proposals?

Yes/No

10

Why do you disapprove of these proposals?

11

Are you against not having longer opening hours?

Against/Not against

12

Level of education

This questionnaire contains some errors in it. Firstly, the questions asked are only for the visitors and not for the potential visitors. Similarly, the questions are generated in an inappropriate order. Some questions are incomplete, such as question 12 which says 'level of education'. This question seems to be incomplete as it does not make sense and is vague at the same time.

(b) Although rural, because of its commuting capability to London, Burwash is a cosmopolitan area, does the suggested questionnaire reveal enough about the present customers to enable planning for future needs?

As stated in the previous question, the questionnaire may not be helpful in fulfilling the purpose and requirements as it was supposed to. This questionnaire should contain questions regarding the potential library visitors and their needs. As the importance of a library can never be ignored, therefore it should be made sure that it must address the questions regarding any kind of issues. It must also contain some kind of suggestions which would be helpful in making the services of library more effectively.

(c) The library is considering installing an automated lending system which will cost £90,000 and the annual savings are expected to be:

Year

1

2

3

4

Savings (£'000)

20

25

30

45

(i) Calculate the Internal Rate of Return (IRR) using the two discount rates 10% and 15%.

Discount factor values:

Year

10%

15%

1

0.909

0.869

2

0.826

0.756

3

0.751

0.657

4

0.683

0.571

Internal Rate of Return at 10%

Year

Savings (£'000)

10%

IRR (£'000)

1

20

0.909

18.18

2

25

0.826

20.65

3

30

0.751

22.53

4

45

0.683

30.735

Sum

 

 

92.095

Internal Rate of return at 15%

Year

Savings (£'000)

15%

IRR (£'000)

1

20

0.869

17.38

2

25

0.756

18.9

3

30

0.657

19.71

4

45

0.571

25.695

Sum

 

 

81.685

Comparison of returns

Returns

10%

15%

18.18

17.38

20.65

18.9

22.53

19.71

30.735

25.695

92.095

81.685

Chart Representation

Cost and returns comparison

Cost

Return at 10%

Return at 15%

90,000

92,095

81,685

Interpretation and Decision-making

After computing the internal rate of return at 10% and 15%, it can be seen that IRR at 10% is more feasible as it exceeds the total cost of the expenditure.

(iii) What are the advantages and disadvantages of the IRR method of investment appraisal?

One of a business' most important tasks is to determine where to invest its resources. Internal rate of return (IRR) is used by businesses to determine which investments to pursue. Calculating IRR can be a complicated, time-consuming process and requires a business ...