Accounting 9706 · AS & A Level · Investment appraisal
Investment appraisal — practice question
LH Limited’s main cutting machine is due for replacement. Buying a new machine will cost $260
000. The case provides forecasts of output, costs, revenue and discount factors.
(a)[4]
Distinguish how the net present value method of investment appraisal differs from the internal rate of return.
(b)[9]
Calculate the expected net present value from replacing the machine.
(c)[7]
Calculate the expected internal rate of return from the replacement machine.
(d)[5]
Analyse the advantages to LH Limited of buying the replacement machine.
Worked solution & mark scheme
This 25-mark question has a full step-by-step worked solution and mark scheme. One marking point: “NPV is based on the present value of net cash flows after subtracting the initial investment.” …