Indicative content
A01 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.
- Understanding of investment appraisal methods - NPV, ARR, payback period.
- Understanding of possible qualitative factors in investment decision - business attitudes, risk, impact on stakeholders, external factors, consistency with business objectives/strategy availability of finance.
AO2 Application
Limited application, △PP applies knowledge to GBS once.
Developed application, APP +APP applies knowledge to GBS twice.
- Requirement for skilled operator.
- Loan finance is available.
- Use of data in Table 1.1 from manufacturer and Mo's experience.
- Impact on unit costs.
- Use of answers to Q3(a) and 3(b) (OFR applies).
- NPV is positive $ 22000.
- ARR is 16.4%.
- Payback and is in 4th year, 3 years and 10.3 months or 3.86 years.
- Discounted payback is 4 years 3.5 months or 4.29 years.
3(c)
AO3 Analysis
Limited analysis AN - candidate shows one link in the chain of analysis.
Developed analysis L2AN - candidate shows two or more links in the chain of analysis.
- Payback is within the 4th year so the investment is forecast to be profitable AN and therefore potentially worth investing in L2AN.
- NPV is positive and should therefore be considered as a worthwhile investment AN.
- GBS may need to finance the investment through borrowing which will increase the gearing of GBS AN and this increases risk for shareholders L2AN.
- The investment would enable GBS to meet the increasing demand for its products and therefore potentially increase profit AN.
- The grinding machine would decrease unit costs and therefore GBS could set lower prices AN which should result in an increase in demand L2AN.
- NPV (positive) and ARR is higher than 5% cost of finance indicating GBS should go ahead AN.
AO4 Evaluation
Limited evaluation гval - limited supported judgement and/or a weak attempt at evaluative comment.
Developed evaluation L2 - supported judgement and/or reasonable evaluative comment.
Developed evaluation in context ⌊3 rwa ⌋ - supported judgement in context and/or reasonable evaluative comment in context.
- Data and investment appraisal methods strongly support the purchase but are the figures accurate and reliable?
- Is a 5 -year life realistic? Can data over a 5 -year future period be relied on?
- Qualitative factors may be as or more important than calculations.
- May not be reliable or accurate - can the manufacturer's data be relied on? They are trying to make a sale so data may be optimistic plus Mo has not done any market research or research into cost savings (relied on experience).
- Are there any other possible investments or changes that will meet GBS's needs? Little evidence of other possibilities other than the bullet points in last section - might finance be better spent on one of these?
- Can GBS afford another course of action as well as the purchase if it goes ahead?
- These points support the conclusion that more detailed research into sales and cost savings including checking the existing data is needed before making a decision.
- Is there a time scale for making the decision?
- Are there other possible ways for growth to occur? Need to investigate before deciding.
- In view of other possible options/actions in the case more research would be justified before deciding.
Accept all valid responses.
