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7 marksCapital Budgeting and Investment Appraisal

CAPE Accounting Unit 2 · 2017 · Paper 2 · Question 3(d)(i)

Spencer Manufacturing is considering purchasing a new machine for $300 000 with a 5-year life and no salvage value. Annual cash profit inflows and 6% discount factors (PVIF) are provided.

Compute the net present value (NPV) of this investment.

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Other parts of this question

  1. 3(a)(i)Calculate the break even point in units.[6 marks]
  2. 3(a)(ii)Calculate the break even point in dollars ($).[3 marks]
  3. 3(b)(i)Calculate the direct material price variance.[2 marks]
  4. 3(b)(ii)Calculate the direct material quantity variance.[2 marks]
  5. 3(b)(iii)Calculate the total direct material cost variance.[2 marks]
  6. 3(b)(iv)Calculate the direct labour rate variance.[2 marks]
  7. 3(b)(v)Calculate the direct labour efficiency variance.[2 marks]
  8. 3(b)(vi)Calculate the total direct labour cost variance.[2 marks]
  9. 3(c)Outline FIVE roles of a budget committee.[5 marks]
  10. 3(d)(ii)Based on the NPV, state whether you would recommend that the machine be purchased and why.[2 marks]

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