(a) Refer to Table 2. Calculate, for the ready meals project, the forecast:

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2021). The mark or mark type is shown in brackets.

1. [1] (a)(i) Attempt, e.g. calculation of cumulative cash flow (1)
2. [2] (a)(i) During Year 4 (2)
3. [3] (a)(i) Payback is 3 years and 0.05 / 0.60 × 12 = 1 month (3)
4. [1] (a)(ii) Accurate calculation of at least one discounted cash flow from years 1–5 (1)
5. [2] (a)(ii) Capital cost not included (2) ($2.1995 (2))
6. [3] (a)(ii) (1.5) + 0.282 + 0.4895 + 0.504 + 0.474 + 0.45 = $0.6995 m (3) allow rounding
7. [Knowledge] (b) Investment appraisal is the quantitative evaluation of investment options to determine their viability and feasibility.
8. [Knowledge] (b) Payback period refers to the amount of time it takes to recover the cost of an investment.
9. [Knowledge] (b) Net present value is the present value of the future net cash flows, calculated by using a chosen discount rate.
10. [Application] (b) Payback period 3 years 1 month (OFR)
11. [Application] (b) NPV $0.6995 m (OFR)
12. [Application] (b) ARR = ($2.65 – $1.5) / 5 = 0.23 / 1.5 × 100 = 15.33%
13. [Application] (b) Rising demand for spicy ready meals in Asian markets
14. [Application] (b) Positive reaction to ready meals in focus group tasting sessions
15. [Application] (b) $1.5 m cost of factory extension and new production equipment
16. [Application] (b) $750 000 marketing budget
17. [Application] (b) Distribution through supermarkets
18. [Analysis] (b) Payback period is relatively short, meaning there is lower risk in the project not covering costs and making a profit.
19. [Analysis] (b) NPV is positive, which means the project is feasible and should go ahead.
20. [Analysis] (b) Ready meals is product development, which is a medium risk strategy. There is a move away from its core product/business area.
21. [Analysis] (b) WSC is likely to face competition in the ready meals market, which could increase risk, but as demand is growing there might be enough demand to make the ready meals successful.
22. [Analysis] (b) Profit levels indicate that the costs of the project are affordable, which supports the decision to carry out the ready meals project.
23. [Evaluation] (b) Evaluation should contain a decision of whether or not to proceed with the ready meals project.
24. [Evaluation] (b) Depends on whether WSC can agree with supermarkets to distribute and sell the ready meals through them.
25. [Evaluation] (b) Depends on whether WSC can afford (or raise) the $1.5 m initial cost.
26. [Evaluation] (b) Depends on the accuracy of the investment appraisal data.
27. [Evaluation] (b) Depends on whether WSC can successfully create a coordinated marketing strategy.
28. [Evaluation] (b) Depends on any other option WSC could choose instead, e.g. other food products.