OxfordAQA A-Level Accounting: Capital investment appraisal (9615) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover 3.2.3 Capital investment appraisal of the OxfordAQA International AS and A-level Accounting (9615) specification, Version 1.2, for International A-level exams from May/June 2026 onwards. The topic is International A-level only and is assessed in Paper 4: Accounting for analysis and decision making. Money is in dollars, the firms are made up, and present values are to the nearest dollar.

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Questions

1. (multiple choice) Tamberlow Plastics is appraising a new moulding machine. Which one of these should be left out of the project cash flows? [1]

A. Operator training in year 1 B. Lower energy bills C. A share of existing factory rent charged to the machine D. The machine’s scrap value at the end of its life

2. (multiple choice) At a 15% cost of capital, which factor applies to cash received at the end of year 2? [1]

A. 0.870 B. 0.756 C. 0.658 D. 0.850

3.

(a) State the meaning of the term cost of capital. [1] (b) Give two reasons why 1,000 received in three years’ time is worth less than 1,000 received today. [2]

4. Abberley Cargo is buying a fleet of electric cargo bikes for 46,800. The bikes will generate net cash inflows of 14,400 a year. How long is the payback period? Give your answer in years and months. [2]

5. Orrinsby Joinery is appraising a computer-controlled router.

(a) The router costs 64,000 plus 1,500 delivery, paid now. The old panel saw will be sold now for 5,500. Last month Orrinsby paid 2,000 for a feasibility study. Calculate the year-0 net cash flow. [2] (b) The forecast for year 1 shows: receipts from extra orders 92,000; timber 31,000; extra wages 18,500; depreciation 12,000; share of head-office costs 4,000; interest on the loan for the router 3,600; maintenance contract 2,900. Calculate the net cash flow for year 1. [3]

6. Calvering Dairy is considering a yoghurt line costing 132,000. Net cash inflows are forecast as: year 1 30,000; year 2 42,000; year 3 44,000; year 4 40,000; year 5 28,000. At its 9% cost of capital, the factors for years 1 to 5 are 0.917, 0.842, 0.772, 0.708 and 0.650.

(a) Calculate the payback period to the nearest month. [3] (b) Calculate the net present value. [4] (c) State, with a reason, whether the line should be bought on financial grounds. [1]

7. Hepscott Gym plans to buy rowing machines for 88,000. They will bring in net cash inflows of 31,500 a year for four years, then be sold for 6,000. The cost of capital is 15%. Discount factors: year 1 0.870, year 2 0.756, year 3 0.658, year 4 0.572. Calculate the net present value and state whether the gym should buy the machines on financial grounds. [5]

8. Explain one benefit and one limitation for Hepscott Gym of using net present value to appraise the rowing machines. [4]

9. Mossbrae Nurseries is considering a polytunnel costing 50,000, with net cash inflows of 16,000, 18,000, 20,000 and 14,000 in years 1 to 4.

(a) Calculate the net present value at a cost of capital of 6%. Discount factors: 0.943, 0.890, 0.840, 0.792. [2] (b) Calculate the net present value at a cost of capital of 16%. Discount factors: 0.862, 0.743, 0.641, 0.552. [2] (c) Explain what your answers show about the cost of capital in investment decisions. [2]

10. Gadsworth Coaches can fund one project. Its cost of capital is 11%, giving factors of 0.901, 0.812, 0.731, 0.659 and 0.593 for years 1 to 5.

Year	Project X: electric coach	Project Y: refurbish two diesel coaches
0	(180,000)	(110,000)
1	30,000	45,000
2	40,000	42,000
3	55,000	38,000
4	60,000	20,000
5	70,000	10,000

Gadsworth mainly carries pupils to two schools. One school will favour low-emission operators when its contract is renewed in year 3. The electric coach needs a charging point and driver training, and its maker is new to the market. Gadsworth’s cash balance is low.

(a) Calculate the payback period of each project to the nearest month. [4] (b) Calculate the net present value of each project. [4] (c) Recommend which project Gadsworth should choose, using financial and non-financial factors. [4]

11. Yarrowdale Pottery is considering an automated glazing line costing 120,000. The accountant forecasts net cash inflows of 36,000 a year for five years. At a 12% cost of capital she calculates a net present value of 9,780 and a payback period of 3 years 4 months. Discount factors: year 1 0.893, year 2 0.797, year 3 0.712, year 4 0.636, year 5 0.567.

A rival is launching cheaper factory-glazed tableware, so inflows in years 3 to 5 could be 25% lower. The line would replace five hand-glazers; two could be retrained as operators. Yarrowdale markets its pieces as “hand-finished”. The line would cut glaze waste and energy use. Spare parts come from overseas and take six weeks. Yarrowdale runs a bank overdraft.

(a) Calculate the net present value if inflows in years 3 to 5 are 25% lower than forecast. [3] (b) Evaluate whether Yarrowdale Pottery should invest in the glazing line. [9]

Answers

1. C – the rent is paid anyway, so it is not an extra cash flow [1] Examiner insight: Ask of each option: would this cash move only because of the project?

2. 1 ÷ 1.15² = 1 ÷ 1.3225 = B, 0.756 [1] Examiner insight: A and C are the year-1 and year-3 factors.

3. (a) The return that providers of finance (lenders and owners) require, so the minimum return a project must earn [1] (b) Any two: money now can be invested to earn a return [1]; inflation erodes later money [1]; a future receipt might not arrive. Examiner insight: Cost of capital is a percentage return, not the price of the asset.

4. 46,800 ÷ 14,400 = 3.25 years [1]; 0.25 × 12 = 3 months, so 3 years 3 months [1] Examiner insight: Convert the decimal to months; “3 years 25 months” is a common slip.

5. (a) 64,000 + 1,500 − 5,500 [1] = (60,000); the 2,000 study is sunk and is excluded [1] (b) Exclude depreciation, head-office costs and interest [1]; 92,000 − (31,000 + 18,500 + 2,900) = 92,000 − 52,400 [1] = 39,600 [1] Examiner insight: Name the items you leave out, so your reasoning is visible.

6. (a) Cumulative: (102,000), (60,000), (16,000), then 24,000 at the end of year 4 [1]; 16,000 ÷ 40,000 × 12 = 4.8 months [1]; 3 years 5 months [1] (b) Present values (cash flow × factor): 27,510; 35,364 [1]; 33,968; 28,320; 18,200 [1]; total 143,362 [1]; NPV = 143,362 − 132,000 = 11,362 [1] (c) The NPV is positive, so the line earns more than 9%: buy it on financial grounds [1] Examiner insight: Divide 16,000 by year 4’s inflow of 40,000, not the cumulative 24,000.

7. Year 4 cash flow = 31,500 + 6,000 = 37,500 [1]; present values 27,405, 23,814, 20,727 and 37,500 × 0.572 = 21,450 [1]; total 93,396 [1]; NPV = 93,396 − 88,000 = 5,396 [1]; positive, so buy the machines on financial grounds [1] Examiner insight: Discount the resale value with year 4’s factor; never add it at full value.

8. Benefit: NPV discounts each inflow at the 15% cost of capital [1], so the gym knows the machines beat that return even after later inflows lose value [1]. Limitation: it depends on the 15% rate being right [1]; a higher true rate could push the NPV below zero [1]. Examiner insight: Link each point to the gym; a one-word “accurate” or “complicated” is not developed.

9. (a) 15,088 + 16,020 + 16,800 + 11,088 = 58,996 [1]; NPV = 8,996 [1] (b) 13,792 + 13,374 + 12,820 + 7,728 = 47,714 [1]; NPV = (2,286) [1] (c) A higher cost of capital shrinks later inflows’ present values, turning accept into reject [1]. So the decision depends on estimating the rate correctly, which is hard [1]. Examiner insight: Use both results: the switch from positive to negative is the point.

10. (a) X cumulative: (150,000), (110,000), (55,000), then 5,000 [1]; 3 years + 55,000 ÷ 60,000 × 12 = 11 months, so 3 years 11 months [1]. Y cumulative: (65,000), (23,000), then 15,000 [1]; 2 years + 23,000 ÷ 38,000 × 12 = 7.3 months, so 2 years 7 months [1] (b) X present values 27,030 + 32,480 + 40,205 + 39,540 + 41,510 = 180,765 [1]; NPV = 765 [1]. Y present values 40,545 + 34,104 + 27,778 + 13,180 + 5,930 = 121,537 [1]; NPV = 11,537 [1] (c) Y has the higher NPV and pays back 16 months sooner, which suits a low cash balance [1]. X barely covers 11%, so a small forecast shortfall makes it negative [1]. But the school’s low-emission preference could cut Y’s inflows from year 3 [1]. Choose Y unless that contract is at real risk; then X, after checking the new maker’s reliability [1]. Examiner insight: Weigh a figure against a non-financial point, then commit to a choice.

11. (a) Years 3 to 5 inflow = 36,000 × 0.75 = 27,000 [1]; present values 32,148 + 28,692 + 19,224 + 17,172 + 15,309 = 112,545 [1]; NPV = (7,455) [1] (b)

• Forecast NPV 9,780 is positive: the line returns more than 12% [1].
• The margin is thin (about 8% of the outlay); the 25% fall gives (7,455) [1].
• Payback of 3 years 4 months is late in a five-year life; 3 years 9 months in the lower case [1].
• With an overdraft, a 120,000 outlay strains liquidity and adds finance costs [1].
• Three hand-glazers lose their jobs, hurting morale and local standing [1].
• Automation weakens the “hand-finished” selling point as a cheaper rival arrives, making the lower forecast likelier [1].
• In favour: less waste and energy, and a more consistent finish [1].
• Six-week waits for spare parts could halt production [1].
• Judgement: the NPV rests on optimistic forecasts and risks the brand, so do not invest now; revisit with local servicing and evidence customers accept machine glazing [1]. Examiner insight: Use your answer to (a), and tie it to the brand and competition facts.

Where marks are usually lost

• Question 1: rejecting scrap value because it arrives late.
• Question 5: deducting depreciation or loan interest as if they were cash payments.
• Question 6: writing 0.4 of a year as 4 months; the fraction must be multiplied by 12.
• Question 7: adding the 6,000 resale value without discounting it.
• Question 10: comparing undiscounted totals instead of the NPVs.
• Question 11: listing points for and against with no final decision.

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Official syllabus

OxfordAQA International AS and A-level Accounting (9615) specification, Version 1.2, for International AS exams May/June 2025 onwards and International A-level exams May/June 2026 onwards (OxfordAQA). Section 3.2.3 Capital investment appraisal.