Using the data in Table 1.2, calculate the payback period of the country C location.

Mark scheme

Marking points from the official mark scheme (Oct/Nov 2025). The mark or mark type is shown in brackets.

1. [1] Payback is in the fifth year.
2. [2] Payback is 4 years 3 months OR 4.25 years. Units required for full marks (Years/months).
3. [1] Common error: 5 years 3 months (1 mark if with evidence of appropriate working e.g. attempt at cumulative cashflow).
4. [1] ARR = Average profit / average investment × 100
5. [2] = 2.8 / 12 × 100 = 23.3%.
6. [1] Answer of 23.3 or $23.3 (1 mark only).
7. [1] Using alternative ARR equation: 2.8 / 20 × 100 = 14%.
8. [1] Definition of payback / ARR / NPV (max 1 mark for definitions of any or all of these terms).
9. [1] Factors in the decision: Shorter payback.
10. [1] Factors in the decision: Higher ARR.
11. [1] Factors in the decision: Capital cost.
12. [1] Factors in the decision: Revenue expenditure required.
13. [1] Factors in the decision: Quality of infrastructure.
14. [1] Factors in the decision: Access to labour and utilities.
15. [1] Factors in the decision: Political/legal environment.
16. [1] Factors in the decision: Quantitative and qualitative factors.
17. [1] Application: Country D location is double the capital cost.
18. [1] Application: Country C has quicker payback by 9 months.
19. [1] Application: Country C has higher ARR by 1.7% points.
20. [1] Application: Country C may have lower wages.
21. [1] Application: Easier to export from Country D.
22. [1] Application: Bigger potential market in Country D.
23. [1] Application: Competition between farmers in country C.
24. [1] Application: Economies of scale in country D farming of fruit.
25. [1] Application: Mission statement regarding sustainability and ethical relationships with farmers.
26. [1] Analysis: Country D is a middle-income country and therefore households will have a higher income.
27. [2] Analysis: Country D is a middle-income country and therefore households will have a higher income this will result in higher sales of juices.
28. [1] Analysis: KTJ juices are a premium product so will be relatively expensive.
29. [2] Analysis: KTJ juices are a premium product so will be relatively expensive so juices may be less affordable in country C leading to lower sales.
30. [1] Analysis: Seaport in country D will facilitate exports of KTJ's juice.
31. [2] Analysis: Seaport in country D will facilitate exports of KTJ's juice resulting in higher sales and may therefore increase profit.
32. [1] Analysis: Reliable infrastructure in D could reduce delays and protect brand image.
33. [2] Analysis: Reliable infrastructure in D could reduce delays and protect brand image resulting in higher sales.
34. [1] Analysis: Lower fixed costs in C could improve cash flow.
35. [2] Analysis: Lower fixed costs in C could improve cash flow reducing risk of liquidity problems for KTJ.
36. [1] Analysis: Economies of scale in D may reduce per-unit costs.
37. [2] Analysis: Economies of scale in D may reduce per-unit costs and therefore increase profit.
38. [1] Evaluation: Supported judgement as to whether country C or D is better.
39. [1] Evaluation: Factors that decision might depend on: Ability of KTJ to raise finance for more expensive option.
40. [1] Evaluation: Factors that decision might depend on: Willingness to take risk – electricity supply in country C and additional capital cost in D.
41. [1] Evaluation: Factors that decision might depend on: Fit with KTJ's CSR – small farms rather than large scale fruit production.
42. [1] Evaluation: Factors that decision might depend on: Importance of profit. C is marginally more profitable than D.
43. [1] Evaluation: Factors that decision might depend on: Depends on KTJ's tolerance for operational risk versus willingness to commit higher capital expenditure.
44. [1] Evaluation: Factors that decision might depend on: Country D offers greater stability and scalability but requires larger upfront investment.
45. [1] Evaluation: Factors that decision might depend on: Country C better supports CSR positioning but may compromise operational reliability.
46. [1] Evaluation: Factors that decision might depend on: A phased investment strategy could balance initial risk with future growth potential.
47. [1] Evaluation: Factors that decision might depend on: Decision may be influenced by external factors such as currency movements, access to finance and market growth trends.
48. [1] Evaluation: Questioning whether Gudaf has the necessary experience / skill to conduct this investment appraisal.