CAIE A-Level Business A2 10.3.4 Investment Appraisal Decisions Topic Practice

Evaluate whether SF should invest in automating production.

4(b)

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Indicative content

AO1 Knowledge and understanding

Limited knowledge K will be demonstrated through knowledge of one factor in the decision.

Developed knowledge K+K will be demonstrated through knowledge of two or more factors in the decision.

- Automation will reduce the relative number of employees.

- Other factors in decision:

- Cost

- Availability of finance

- Impact on employees

- ARR

- Payback results and NPV

- Control over quality

- Benefits/limitations of alternatives such as outsourcing

- Production may/should increase

- Less mistakes made

AO2 Application

Limited application, ${ }^{\mathrm{APP}}$ applies knowledge to SF once.

Developed application, ${ }^{\triangle \mathrm{PP}}+{ }^{\triangle \mathrm{PP}}$ applies knowledge to SF twice.

Use of results to investment appraisal OFR/case study information.

- ARR is above criterion rate of 20%.

- Payback is 4 years and 4 months ( 4.36 years). Allow within 5 years. Allow 132.7 days.

- Sales forecast data shows clear upward sales trend of ice cream.

- Capacity utilisation is 90%.

- Plans to export to country D.

- Possible impact of joining free trade area.
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4(b)

AO3 Analysis

Limited analysis ${ }^{\mathrm{AN}}$ - candidate shows one link in the chain of analysis.

Developed analysis L2AN - candidate shows two or more links in the chain of analysis.

- Reduction in number of employees will reduce unit labour costs of production AN. This will help reduce unit costs and could result in a higher profit margin L2 AN or a lower selling price leading to increased sales L2 AN.

- Outsourcing could reduce control over quality and increase chance of poor-quality food reaching customers and consumers resulting in dissatisfaction AN and therefore a loss of sales L2AN.

- Joining free trade area in January 2025 may lead to increased exports increasing pressure on capacity AN therefore SF need to increase capacity to meet expected demand L2AN.

- The capital investment cost required for automating would mean sacrificing alternative investment decisions AN.

AO4 Evaluation

Limited evaluation ${ }^{[\text {wat }]}$ - limited supported judgement and/or a weak attempt at evaluative comment.

Developed evaluation ${ }^{\text {L2 }}{ }^{\text {was }}$ - supported judgement and/or reasonable evaluative comment.

Developed evaluation in context ${ }^{\text {[ } 3 \text { ] }}$ - supported judgement in context and/or reasonable evaluative comment in context.

- Elements that the evaluation/judgement might depend on:

- Accuracy of the data over 6 years.

- Significance of retaining control over quality for food products.

- Depends on whether the increase in demand is long-term.

- Reaction of employees and consideration of duty to them.

- Availability of finance.

- How long will it take to implement?

- Impact on quality.

- Availability of appropriately trained/skilled labour.

Accept all valid responses.