Refer to Table 3 and Appendix 1. Calculate for the first 6 years of the frozen food project:

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2017). The mark or mark type is shown in brackets.

1. [2] All correct
2. [1] some idea
3. [2] 0: -12 x 1 = -12
4. [2] 1: 4 x 0.91 = 3.64
5. [2] 2: 4 x 0.83 = 3.32
6. [2] 3: 4 x 0.75 = 3
7. [2] 4: 5 x 0.68 = 3.4
8. [2] 5: 5 x 0.62 = 3.1
9. [2] 6: 5 x 0.56 = 2.8
10. [3] 3 years 7.2 months
11. [2] 3 years 7 months
12. [1] Some attempt
13. [1] If actual net cash flows used (3 years) allow 1 mark OFR
14. [3] NPV = 7.26
15. [2] Good attempt e.g. $19.26m
16. [1] Some idea
17. [1] OFR
18. [12] Investment appraisal results are an important quantitative technique for selecting projects e.g. against each other or against criteria benchmarks
19. [12] Discounted payback allows today's money values of net cash flows to be compared with initial capital cost.
20. [12] Other considerations: Decision tree analysis, Availability of finance, Importance of CPA
21. [12] DCF 3 years 7.2 months could be considered quick enough in a relatively slow moving industry
22. [12] NPV positive which shows that in today/s money values the project will be profitable over a 6 year period
23. [12] ARR is above criterion rate so the project satisfies the NFP minimum for an investment
24. [12] All results are good – qualitative factors might be positive – some economic growth would increase demand for quality frozen food – if income elastic.
25. [12] Source of cash flow forecasts not explained and how reliable is the CPA for completion time etc.?
26. [12] Could industrial relations problems upset the project and make it less successful? More information about union membership etc.
27. [12] Break-even would have been useful – how big is annual safety margin to allow for lower than expected forecast sales?
28. [12] Decision tree analysis would have allowed a consideration of risks involved
29. [12] Qualitative factors include customer taste tests - have these been undertaken and did they like the possible menus?
30. [12] More detailed market research needed to see what type of products and what type of consumers should be aimed for
31. [12] Recognition of benefits of data provided and investment appraisal results balanced against limitations and gaps
32. [12] Overall: additional data needs to be explained and justified and overall conclusion drawn regarding sufficiency of data