Accounting 9706 · AS & A Level · Investment appraisal

Investment appraisal — practice question

Look at Source B2 in the Insert.
(a)[4]

Explain the difference between the net present value and payback methods of investment appraisal.

(b(i))[2]

Calculate the payback period for Machine B.

(b(ii))[8]

Calculate the net present value for Machine A.

(b(iii))[6]

Calculate the average rate of return for both machines.

(c)[5]

Advise Daniyar which machine he should purchase. Justify your decision.

Worked solution & mark scheme

This 25-mark question has a full step-by-step worked solution and mark scheme. One marking point: NPV applies discounting to future cash flows

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