Question 3 Investment AppraisalTechniques
Question 3 Investment Appraisal Techniques
Lovewell Limited a food manufacturer is considering purchasing a new machine for
£275,000. The company is expecting an annual cash inflow of £85,000 from the sale of
products and an annual cash outflow of £12,500 for each of the six years of the machine’s
useful life. The annual cash outflows do not include annual depreciation charges for the
machine. The machine is depreciated using the straight –line method. The machine is expected
to last for six years, with a residual value estimated to be at the rate of 15% of the original cost
of the machine. The cost of capital for Lovewell Limited is 12%.
You are required to:
(a) Calculate using the following investment appraisal techniques, and provide
brief recommendations as to the economic feasibility of acquiring the machine:
i. The Payback Period.
ii. The Accounting Rate ofReturn.
iii. The Net Present Value.
iv. The Internal Rate of Return (to two decimal places)
(b) Critically evaluate the benefits and limitations of each of the differing investment
appraisal techniques, ensuring the response is supported with relevant academic research.
Table 1 Applied Penalties for exceeding the word count.
Word limit Penalty Actual
Exceeds limit by up to 10% No penalty – tolerance
band (see below)
Exceeds limit by 10.1-20% -5% 3301 – 3600
Exceeds limit by 20.1-30% -10 % 3601 – 3900
Exceeds limit by 30.1-40% -15 % 3901 – 4200
Exceeds limit by 40.1-50% -20 % 4201 – 4500
Exceeds limit by more than50% Mark of zero 4501+
The learning outcomes for this module assessed by this piece of workare:
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and academic integrity, please refer to your Programme Handbook on the University of Sunderland in
London information page on Canvas.
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work for marking. Your submission links will become available approximately 3 weeks prior to your
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You will be marked in accordance to the University of Sunderland assessment criteria attached
below. The assessment criteria covers; Relevance, Knowledge, Analysis, Argument andStructure,
Critical Evaluation, Presentation, Reference toLiterature.
Grade Relevance Knowledge Analysis Argument and
Critical Evaluation Presentation Reference to Literature
The work examined is exemplary and provides clear evidence of a complete grasp of the knowledge, understanding and skills appropriate to the Level
of the qualification. There is also ample excellent evidence showing that all the learning outcomes and responsibilities appropriate to that Level are
fully satisfied. At this level it is expected that the work will be exemplary in all the categories cited above. It will demonstrate a particularly compelling
evaluation, originality, and elegance of argument, interpretation ordiscourse.
76-85% The work examined is outstanding and demonstrates comprehensive knowledge, understanding and skills appropriate to the Level of the
qualification. There is also excellent evidence showing that all the learning outcomes and responsibilities appropriate to that level are fully satisfied.
At this level it is expected that the work will be outstanding in the majority of the category as cited above or by demonstrating particularly compelling
evaluation and elegance of argument, interpretation ordiscourse.
The work examined is excellent and is evidence of comprehensive knowledge, understanding and skills appropriate to the Level of the qualification.
There is also excellent evidence showing that all the learning outcomes and responsibilities appropriate to that level are satisfied. At this level it is
expected that the work will be excellent in the majority of the categories cited above or by demonstrating particularly compelling evaluation and
elegance of argument, interpretation or discourse.
showing a clear
grasp of themes,
Generally coherent and
using an appropriate
mode of argument
May contain some
thinking; may begin
to formulate an
grammar, in a
Critical appraisal of upto-date and/or
Very good use of
position in relation
to theory and/or
source material. Uses
a range of sources
to address the
may drift away
from this in less
knowledge of a
fair range of
evidence of an
may be prone
or to narrative,
Some attempt to
construct a coherent
argument, but may
suffer loss of focus and
consistency, with issues
at stake stated only
vaguely, or theoretical
mode(s) couched in
Sound work which
only in broad terms
and in uncritical
conformity to one
or more standard
views of the topic
only minor lapses
Uses a variety of
includes some recent
though not necessarily
including a substantive
amount beyond library
texts. Competent use
of source material.
but there is a
the subject but
limited range of
A basic argument is
evident, but mainly
supported by assertion
and there may be a
lack of clarity and
Some evidence of a
view starting to be
formed but mainly
A simple basic
style but with
format that may
for the reader
literature used. Goes
beyond the material
tutor has provided.
Limited use of sources
to support a point.
Weak use of source
Relevance to the
may be very
and may be
reduced to its
a narrow range
Little evidence of
lacks development and
may be repetitive or
achieve clarity (if
at all) only by
using a simplistic
Barely adequate use of
reliance on material
provided by the tutor.
The evidence provided shows that the majority of the learning outcomes and responsibilities appropriate to that Level are satisfied.
The work examined provides insufficient evidence of the knowledge, understanding and skills appropriate to the Level of the qualification. The
evidence provided shows that some of the learning outcomes and responsibilities appropriate to that Level are satisfied. The work will be weak in
some of the indicators.
15-29% The work examined is unacceptable and provides little evidence of the knowledge, understanding and skills appropriate to the Level of the
qualification. The evidence shows that few of the learning outcomes and responsibilities appropriate to that Level are satisfied. The work will be
weak in several of the indicators.
0-14% The work examined is unacceptable and provides almost no evidence of the knowledge, understanding and skills appropriate to the Level of the
qualification. The evidence fails to show that any of the learning outcomes and responsibilities appropriate to that Level are satisfied. The work will
be weak in the majority or all of the indicators.
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