Accounting Question

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)
(20 marks)
(b) Critically evaluate the benefits and limitations of each of the differing investment
appraisal techniques, ensuring the response is supported with relevant academic research.
(30 marks)
Table 1 Applied Penalties for exceeding the word count.
Word limit Penalty Actual
Word Count
Exceeds limit by up to 10% No penalty – tolerance
band (see below)
3300
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:
Assessment Regulations
For further information regarding Assessment Regulations, extenuating circumstances or extensions
and academic integrity, please refer to your Programme Handbook on the University of Sunderland in
London information page on Canvas.
Reading List
Please access your reading list from the library website. To access it, please go to
https://moduleresources.sunderland.ac.uk/ and search for yourmodule.
Submission guidelines
There are currently two steps that you need to follow to ensure that you successfully submit your
work for marking. Your submission links will become available approximately 3 weeks prior to your
submission deadline, along with detailed instructions on how to submit your assignment, but in the
meantime please feel free to also watch this Assignment Submission Instructions video.
Grading
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.
Assessment Criteria
Categories
Grade Relevance Knowledge Analysis Argument and
Structure
Critical Evaluation Presentation Reference to Literature
Pass
86 –
100%
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.
70 –
75%
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.
60 –
69%
Directly relevant
to the
requirements of
the assessment
A substantial
knowledge of
relevant
material,
showing a clear
grasp of themes,
Good analysis,
clear and
orderly
Generally coherent and
logically structured,
using an appropriate
mode of argument
and/or theoretical
mode(s)
May contain some
distinctive or
independent
thinking; may begin
to formulate an
independent
Well written,
with standard
spelling and
grammar, in a
readable style
Critical appraisal of upto-date and/or
appropriate literature.
Recognition of
different perspectives.
Very good use of
questions and
issues therein
position in relation
to theory and/or
practice.
with acceptable
format
source material. Uses
a range of sources
50 –
59%
Some attempt
to address the
requirements of
the assessment:
may drift away
from this in less
focused
passages
Adequate
knowledge of a
fair range of
relevant
material, with
intermittent
evidence of an
appreciation of
its significance
Some analytical
treatment, but
may be prone
to description,
or to narrative,
which lacks
clear analytical
purpose
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
simplistic terms
Sound work which
expresses a
coherent position
only in broad terms
and in uncritical
conformity to one
or more standard
views of the topic
Competently
written, with
only minor lapses
from standard
grammar, with
acceptable
format
Uses a variety of
literature which
includes some recent
texts and/or
appropriate literature,
though not necessarily
including a substantive
amount beyond library
texts. Competent use
of source material.
40 –
49%
Some
correlation with
the
requirements of
the assessment
but there is a
significant
degree of
irrelevance
Basic
understanding of
the subject but
addressing a
limited range of
material
Largely
descriptive or
narrative, with
little evidence
of analysis
A basic argument is
evident, but mainly
supported by assertion
and there may be a
lack of clarity and
coherence
Some evidence of a
view starting to be
formed but mainly
derivative.
A simple basic
style but with
significant
deficiencies in
expression or
format that may
pose obstacles
for the reader
Some up-to-date
and/or appropriate
literature used. Goes
beyond the material
tutor has provided.
Limited use of sources
to support a point.
Weak use of source
material.
Fail
35 –
39%
Relevance to the
requirements of
the assessment
may be very
intermittent,
and may be
reduced to its
vaguest and
least challenging
terms
A limited
understanding of
a narrow range
of material
Heavy
dependence on
description,
and/or on
paraphrase, is
common
Little evidence of
coherent argument:
lacks development and
may be repetitive or
thin
Almost wholly
derivative: the
writer’s
contribution rarely
goes beyond
simplifying
paraphrase
Numerous
deficiencies in
expression and
presentation; the
writer may
achieve clarity (if
at all) only by
using a simplistic
or repetitious
style
Barely adequate use of
literature. Over
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.
30 –
34%
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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