AQA A Level Business Studies
Topic questions Business economics Investment appraisal
5 questions · 74 marks · about 1.5 hours
A company invests £20 million into a new project in Year 0.
In the next two years the predicted net returns of the project, along with the discount factors, are shown in the table below:
| Year | Net return (£m) | Discount factor |
| 1 | 11 | 0.91 |
| 2 | 12 | 0.83 |
Based on the information provided, calculate the expected net present value (NPV) for the new project.
Show your working.
Should Sanjay add ‘slushy’ machines to his three branches?
Use quantitative and qualitative information and calculations to support your answer.
Read the information below and then answer the questions that follow.
AJS plc
AJS plc is a manufacturer of non-recyclable packaging. This packaging is widely used by takeaway food outlets. AJS plc plans to invest £500 000 in new technology to increase capacity and make its factory more capital intensive.
Appendix A Data on proposed investment (produced by AJS plc’s operations manager)
| Year | Annual net cash flow£000s | Discount factor (10%) |
| 0 | (500) | 1.00 |
| 1 | (50) | 0.91 |
| 2 | 250 | 0.83 |
| 3 | 600 | 0.75 |
Appendix B UK market for non-recyclable takeaway food packaging
Appendix C UK market for recyclable takeaway food packaging
Appendix D Selected Human Resource data 2022
| AJS plc | Industry average | |
| Average salary | £22 000 | £26 000 |
| Salary costs as a percentage of turnover (%) | 40 | 35 |
| Labour turnover (%) | 15 | 4 |
| Working days lost through industrial action | 25 | 5 |
| Average number of applicants for vacancies | 14 | 55 |
Appendix E Selected Financial data for AJS plc
| 2022 | |
| Current assets | £550 000 |
| Current liabilities | £270 000 |
| Non-current liabilities | £4m |
| Operating profit | £3m |
| Gearing | 22% |
| Change in the share price of AJS plc over the year | –15% |
| Change in the share price of the top 100 UK companies over the year | +8% |
Calculate the Net Present Value for AJS plc’s proposed investment.
Using Appendix E, calculate the Return on Capital Employed for AJS plc in 2022.
Analyse why AJS plc has decided to become more capital intensive.
With reference to the data provided, would you advise a potential investor to buy shares in AJS plc?
Justify your view.
Also involves Business location
Should AM plc invest in building its new factory at Site A or Site B?
Use quantitative and qualitative information to justify your view.
The table below shows the net annual return of an investment.
| Year | Net return (£000s) |
| 0 | (1000) |
| 1 | 500 |
| 2 | 900 |
After two years, the ARR (%) for this investment is
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