Accounting 9706 · AS & A Level · Investment appraisal

Investment appraisal — practice question

Gerry produces a product with Machine B and is thinking about replacing it with Machine X. Budgeted figures and extra financial data are provided.
(a(i))[5]

Calculate the net cash flow in each year for Machine X.

(a(ii))[3]

Calculate the payback period for Machine X.

(a(iii))[5]

Calculate the accounting rate of return for Machine X to two decimal places.

(b)[4]

State two benefits and two drawbacks of using the payback method of investment appraisal.

(c)[3]

Calculate the net present value (NPV) of Machine X.

(d)[5]

Advise Gerry whether he should buy Machine X. Support your answer with two financial and two non-financial factors.

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