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