ACCA/CAT

Net present value to infinity

Automatic model

NPV μ= NPV of the project/PV of annuity of appropriate years and rate

Discount Rate

= ￡17,130,000/3.736

0.155

= ￡29,581,405

Super model

= ￡18,920,000/3.605

0.20

= ￡26,241,332

Having calculated the net present values of the two projects to infinity clearly one can see that the automatic model has a net present value of about ￡29.5m whereas super has a lower net present value of about ￡26.2m. This means that the automatic model will give a higher return to the shareholders of Samco plc. This is the model the Board should manufacture and sell to their customers, because shareholders? wealth will be maximised by taking this course of action.

Conclusion

The main objective of this second article in the area of project appraisal was to demonstrate to readers that cases might not necessarily be straightforward. Aspects such as inflation, taxation and unequal life spans must be understood in order that candidates can competently answer questions requiring an understanding of these further aspects. The scenario in Samco plc should be carefully followed ensuring that you understand how the author has used the available information to answer the question.

编辑推荐：

2015年度ACCA从业资格考试考试简介

ACCA特许会计师通关必备历年考试真题

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