When using the NPV method the present value table is required in order to find out the present value factors of the pound at different rates over different time periods. Your examination question paper has often in the past provided the table for candidates? use with the examination questions. There is no indication that this will not continue. However the figures in the table can be calculated if a table is unavailable.

　　Deluxe model

　　Under the NPV method super has a positive NPV of ￡51,840 whilst deluxe has a negative NPV of ￡41,040. Any project with a negative NPV should not be undertaken at all. On the basis of this super model will be recommended but not deluxe model.

　　Internal Rate of Return (IRR)

　　Under NPV we have used 12% discount rate and arrived at both a positive and negative NPV respectively for the two machines. We need to use a higher rate for the Super model to arrive at a negative NPV and a lower rate for Deluxe model to arrive at a positive NPV. Remember that the higher the IRR the better. Let us now use 20% for Super model and 4% for Deluxe model.

　　Super Model

　　Now that we have a negative NPV for Super model we can now use the IRR formula we had earlier to establish IRR for this model.

　　Now let us turn our attention to the second machine, but first we need to find a positive NPV for this machine. We have stated earlier that we will use 4%, let us use that straight away.

　　Deluxe Model

　　The Deluxe module has an IRR of 10.51%. As this is lower than the super model?s 16.52%, once again super model will be recommended.

　　Conclusion

　　It can be seen that all four methods of investment appraisal have consistently recommended the Super model. This has happened because the example was designed to do so. A real life exercise on investment appraisal will probably not be as easy and straightforward as this. Life is never straightforward. The author has not introduced any complications into the example. Areas that could bring in complications such as projects with unequal lives, effects of taxation and inflation have been deliberately left out of the example in this article. A future article by the author will bring in some of these complications so that readers can appreciate that life in this area is not always as straightforward as depicted in this article.

　　Reference

　　1. Idowu, S. O., ?Budgeting: A management tool?, ACCA Students? Newsletter, April 1996, Pages 58?59.

　　When using the NPV method the present value table is required in order to find out the present value factors of the pound at different rates over different time periods. Your examination question paper has often in the past provided the table for candidates? use with the examination questions. There is no indication that this will not continue. However the figures in the table can be calculated if a table is unavailable.

　　Deluxe model

　　Under the NPV method super has a positive NPV of ￡51,840 whilst deluxe has a negative NPV of ￡41,040. Any project with a negative NPV should not be undertaken at all. On the basis of this super model will be recommended but not deluxe model.

　　Internal Rate of Return (IRR)

　　Under NPV we have used 12% discount rate and arrived at both a positive and negative NPV respectively for the two machines. We need to use a higher rate for the Super model to arrive at a negative NPV and a lower rate for Deluxe model to arrive at a positive NPV. Remember that the higher the IRR the better. Let us now use 20% for Super model and 4% for Deluxe model.

　　Super Model

　　Now that we have a negative NPV for Super model we can now use the IRR formula we had earlier to establish IRR for this model.

　　Now let us turn our attention to the second machine, but first we need to find a positive NPV for this machine. We have stated earlier that we will use 4%, let us use that straight away.

　　Deluxe Model