Accounting 9706 · AS & A Level · Investment appraisal
Investment appraisal — practice question
Ronaldo is thinking about launching a new product, which means he must buy a new machine. Two options are available, Machine A and Machine B, yet only one can be chosen. Each machine will be sold for scrap after five years and has no residual value.
(a)[10]
Calculate the accounting rate of return (ARR) for Machine A, giving your answer to two decimal places.
(b)[4]
Calculate the net present value (NPV) for Machine A.
(c)[6]
State three benefits and three drawbacks of using the payback method of investment appraisal.
(d)[5]
Advise Ronaldo on which machine he should buy. Justify your answer.
Worked solution & mark scheme
This 25-mark question has a full step-by-step worked solution and mark scheme.