EXAM PRACTICE 3.8 y 4.

3.8 INVESTMENT APPRAISAL: Payback period/ ARR/ NET PRESENT VALUE

(HL ONLY)

1) Company X is planning to undertake a project requiring an initial

investment of $50 million and is expected to generate $15 million in Year 1,
$20 million in Year 2, $25 million in year 3, and $50 million in Year 4.
Calculate the payback period for the project.
SOLUTION: 2 años y 7,2 meses

2) Company X is planning to undertake a project requiring an initial

investment of $50 million and is expected to generate $15 million in Year 1,
$20 million in Year 2, $25 million in year 3, and $50 million in Year 4.
Calculate the ARR for the project.

SOLUTION: 30%

3) NOV. 2012 paper 2. IB EXAM:

 a) Calculate the payback period for Option A
b) Calculate the average rate of return for Option B
c) For both option A and B, calculate the net present value using a discount
rate of 4%
d) Explain one advantage and one disadvantage for the business EEB of
using the NPV method of investment appraisal

SOLUTIONS:
4) NOV. 2011 paper 2. IB EXAM

Using the additional information about publishing company B, calculate:

a) The payback period (to the nearest month)
b) The average rate of return (ARR)

SOLUTION
5) Mayo 2012 SL, paper 1
SOLUTIONS
 6) Using the below table calculate:

a) Market share of A by volume 2015

b) Market share of B by value 2016
c) Market share of C by volume 2015
d) Market growth for the whole industry by value from 2015 to 2016
e) Explain the difference between product and market orientated.

A B C
Year 2015 2016 2015 2016 2015 2016
Sales of computers
(million units) 400 420 600 630 700 720
Sales of computers
(€million) 15 18 30 37 25 20