q

5
Investment decision

5
Learning objectives
Oncompletion
ofthischapter
youshould
beableto:

Syllabus
reference
• Identify
andcalculate
relevant
cashflowsforinvestmentD1(a)
projects
• Calculate
payback
period anddiscuss
itsusefulness
as D1(b)
aninvestment
appraisal
method
• Calculate
discounted
paybackanddiscuss
itsusefulnessD1(c)
asaninvestment
appraisal
method
• Calculate
return
oncapitalemployed
(accounting
rateof D1(d)
return)
anddiscussitsusefulness
asaninvestment
G H

appraisal
method
• Calculate
netpresent
valueanddiscuss
itsusefulness
as D1(e)
aninvestment
appraisal
method
• Calculate
internal
rateofreturn
anddiscuss
its D1(f)
usefulness
asaninvestment
appraisal
method
• Discuss
thesuperiority
ofdiscounted
cashflow(DCF) D1(g)
methodsovernon-DCFmethods
• Discuss
therelative
merits
ofNPVandIRR D1(h)
5
Exam context
Thischapterintroducesa variety
ofinvestmentappraisal
techniquesthatareimportant
inSection
Dofthesyllabus (Investment
appraisal),
itisoneoffourchapters(alongwithChapters
6–8)that
coversthisimportantsyllabus
section.
Thetopicscovered herearecommonly examined
inall
sections
oftheexamincluding section
C. Questions
won’tjustinvolve
calculations;
youmaybe
askedtodiscusstheproblems withthemethods youhaveused,ortheirmeaning.

Page 121 of 641

 q
5
Chapter overview

Investment decision

Investmentdecision Simpletechniques Timevalueand discounting

Decision-making
process Payback
period

Relevant
cashflows Discounted
paybackperiod

ROCE/ARR

Netpresent value Internalrate of return NPVvsIRR

IRRadvantage

NPV
advantages
G H

100 Financial
Management
(FM)

Page 122 of 641

 q
1 Investment decision-making

1.1 Investment decision-making process

PER alert
Performanceobjective9 requiresyou to ‘valueprojects,financialsecuritiesand instruments
and adviseon theircosts and benefitsto the organisation’.Thischapter concentrateson
valuingprojectsusingdiscountedcash flowtechniques
Capitalinvestmentprojectsinvolvethe outlayof large sumsof moneyinthe expectationof
benefitsthat may take severalyears to accrue.
Thedecisionwhetherto proceedwitha capital investmentprojectis normallymade by a capital
expenditurecommitteeoverseeinga process that includesthe followingphases:
(a) Idea creation (b) Screening (c) Financial (d) Review
analysis
Proposalscan be Toscreenout Adetailed appraisal Apost-completion
stimulatedby a unsuitableproposals of the project’srisk review(oraudit)
regularreviewof the by lookingat the and return,howit will aimsto learn from
company’s impact of the project be financed,any mistakesthat have
competitive on stakeholdersand alternativesto it and ariseninthe project
environmentand can whetherthey support the implicationsof appraisalprocess.
be encouragedby the organisation’s not acceptingthe
incentiveschemes. strategy. project.

TheFinancialManagementsyllabusmainlyfocusseson financialanalysisand thisarea is further

G
consideredinthis,and the followingthree chapters. H

1.2 Relevant cash flows

Mostfinancialanalysistechniquesthat are used foranalysingprojectsare based on the use of
relevantcash flows.

Relevantcash flow:Afutureincrementalcash flowcaused by a decision(egto investina

KEY
TERM project).
Youwillcomeacross many examplesinthischapter, and infollowingchapters,of cash flowsthat
clearlyrelateto a project.However,a specificand lessobvioustype of relevantcash flowto look
out foris an opportunitycost.

Opportunitycost: Acost incurredfromdivertingexistingresourcesfromtheirbest use.

KEY
TERM
Illustration 1: Opportunity cost

Ifa team of workers,costing$300,000 per year, isdivertedto workon a newprojectthen they will
stop workon existingproductswhichearn contribution(iesales revenuelessvariablecost)of
$500,000,thiscontributionwillthereforebe lost(notethat thisassumesthat labouris a variable
cost).
Required
Calculatethe relevantcost associatedwithusingthe team of workerson the newproject.

5:Investment
decision 101

Page 123 of 641

 q
Solution
Therelevantcost is the opportunitycost ie the $500,000 of lostcontributionplusthe cost of the
workers.Thisgivesa total relevantcost of $800,000.

1.2.1 Non-relevant costs examples

Questionswillexpectyou to be able to identifycosts that are not relevantto decision-making.
Someexamplesare includedinthe followingtable.
Examples Explanation
Non-cashflows Depreciationand apportionedoverheads(ieoverheadsthat are
not directlyattributableto a project)are not cash flows.
Sunkand committedcosts Acost incurredin the past (iesunk),or committedto, willnot
change whethera projectgoes ahead or not and is therefore
not a relevantcash flow(marketresearchis oftenan example
of this).
Historiccost of materials Ifmaterialsthat are used by a projectneed to be replaced,the
relevantcost of the materialsis the replacementcost of the
material- not the priceoriginallypaid to acquirethe material
(iethe historiccost).
Ifsuch materialsdo not need to be replaced,the relevantcost is
zero(unlessthere is an opportunitycost fromlostrevenueifthe
materialcouldhavebeen soldas scrap).
Thehistoriccost of materialsshouldonlybe treated as
‘relevant’ifno indicationof scrap valuesor replacementcosts
are givenina question.
G H

Cost of labour Iflabourused by a projectis:

(a) Idle,then the relevantcost of usingthat labouris zero
(b) Atfullcapacity, then the cost is wages paid +contribution
lost on the workthat they havehad to stop doing.
Onlyuse the labourcost as a relevantcost ifno indicationof
capacity issuesare givenina question.
Financecosts Anyfinancecosts (egdividendpayments,interestpayments)
shouldnot be consideredas a cash flowbecause they are
includedinthe cost of capital used to discounta project
(coveredinsection3).

Activity 1: Relevant costing

Brendaand Eddieare consideringexpandingtheirrestaurantbusinessthroughan investmentina

newrestaurant,the ParkwayDiner.Brendaand Eddiehaveanalysed the profitmade inthe first
year and are concernedthat the projectcouldbe lossmaking.
TheirYear1costs and revenuesare forecastas follows:
Year1 $
Revenue 200,000
Depreciation 25,000
Materials(note1) 49,000
Labour(note2) 100,000

102 Financial
Management
(FM)

Page 124 of 641

 q
Year1 $
Overheads(note3) 100,000
Profit/(loss) (74,000)

Notes.
1 Thematerialsinclude$10,000of surplusinventorythat Brendaand Eddiehaveintheirexisting
restaurants.Thisinventoryhas a scrap valueof $1,000.
2 Labourincludes20%of the $50,000 salary of a manager of an existingbranch, whowillassist
the existingmanager of the restaurantinits firstyear of operation.
3 Thisis an allocationof corporateoverheads.
Required
Assessthe relevantcash flowsof the projectinthe firstyear to Brendaand Eddieand advise
Brendaand Eddiewhetherthey are rightto be concerned.

Solution

G H

Essential reading

SeeChapter 5 Section1of the EssentialReading,availableinthe digitaleditionof the Workbook,

forfurtherdiscussionof thisarea
TheEssentialreadingis availableas an Appendixof the digitaleditionof the Workbook.

2 Simple techniques

2.1 Payback period

Payback period:Ameasureof howlongit takes forthe cash flowsaffected by the decisionto

KEY investto repay the cost of the originalinvestment.
TERM
Paybackis oftenused as part of an initialscreeningof projects.Ifa projectgets throughthe
payback test it shouldbe evaluatedusinga moresophisticatedprojectappraisal technique.
Aprojectwitha longpayback periodis consideredto be uncertain because it relieson cash flows
that are inthe distantfutureand are thereforehighlyuncertain.
Acompanywillreject a projectwitha payback periodthat is abovethe company’starget
payback period.
Paybackis especiallyusefulifa companyhas cash flowconcernsbecause it focusseson shorter-
terminvestments.

5:Investment
decision 103

Page 125 of 641

 q
Paybackis based on relevantcash flowsso any non-cash flowcost items(egdepreciation)
shouldbe ignored.

Activity 2: Payback period

Brendaand Eddieare worriedabout the lengthof timeit willtake forthe cash flowsfromthe
ParkwayDinerto repay theirtotal investmentof $500,000 ($350,000to take overthe business
and $150,000to refurbishit).
Cash flowprojectionsfromthe projectare estimatedas:
Operatingcash flows
Year $
1 70,000
2 70,000
3 80,000
4 100,000
5 100,000
6 120,000
Afterthe sixthyear, Brendaand Eddieconfidentlyexpectthat they couldsellthe businessfor
$350,000.
Required
Calculatethe payback periodforthe project.

G
Solution H

2.1.1 General problems with payback

(a) Itignoresthe timingof cash flowswithinthe payback period(egignoresthat a projectis
moreuncertainifmostof the cash is receivedat the end of the payback period).
(b) Itignoresthe cash flowsafter the end of the payback periodand thereforethe total project
return.
(c) Itignoresthe timevalueof money(a concept incorporatedintomoresophisticatedappraisal
methods).Thismeans that it does not take intoaccount that the valueof moneyis lowerthe
furtherintothe futurethat the moneyis received.
(d) Thechoiceof any cut-off payback periodby an organisationis arbitrary.
(e) Itmay lead to excessiveinvestmentinshort-termprojects.
Becauseof these drawbacks,a projectshouldnot be evaluatedusingpayback alone.

104 Financial
Management
(FM)

Page 126 of 641

 q
2.1.2 Discounted payback period
Paybackcan be based on discountedcash flows(coveredinSection3),inwhichcase it is called
discountedpayback (oradjustedpayback)period.Asidefrombeingbased on discountedcash
flows,the calculationis the same and mostof the drawbacksremain.
2.2 Return on capital employed
Returnon capital employed(ROCE)is also calledaccountingrate of return(ARR) and returnon
investment(ROI).ROCEis another simple,traditional,approach to evaluatinginvestments.
ROCEcomparesthe profitfroman investmentprojectto the amountinvestedinthe project,
expressingthe resultas a percentage.
Usingthismethod,a companywillaccept a projectifit has a ROCEabovethe company’starget.
2.2.1 Calculation (formulae are not given and need to be learnt)
Profitiscalculatedafter depreciationwhichwehaveseen isnot a relevantcash flow,thisfailure
to distinguishbetweenrelevantand non-relevantcash flowsis one of the many drawbacksof this
technique.
ROCE = Averageannualprofit
Initialinvestment

or
ROCE = Averageannualprofit
Averageinvestment

Whereaverageinvestment=
Initialoutlay+ scrapvalue
2
G H

Illustration 2: ROCE

Anasset costing$120,000is to be depreciatedover5 years to a nilresidualvalue.Profitsafter

depreciationforthe 5 years of the projectare as follows.
Year 1 2 3 4 5
Profits 12,000 17,000 28,000 37,000 8,000

Required
Whatis the averageaccountingrate of returnforthisproject?(Giveyouranswerto the nearest
percentage.)

Solution
Averageinvestment= [$120,000(start)+$0 (end)]÷2 =$60,000
Averageprofits=[12,000+17,000+28,000 +37,000+8,000]÷5 (years)=$20,400
ARR=$20,400÷$60,000 =34%(thiscan also be referredto as ROIor ROCE).

Activity 3: ARR

Brendaand Eddieare consideringexpandingtheirrestaurantbusinessthroughpurchaseof the

ParkwayDiner,whichwillcost $350,000to take overthe businessand a further$150,000to
refurbishthe premiseswithnewequipment.Cash flowprojectionsforthisprojectare as forthe
previousactivity.

5:Investment
decision 105

Page 127 of 641

 q
Theequipmentwillbedepreciated
toa zeroresale
valueoverthesameperiodand,afterthesixth
year,Brenda
andEddieconfidently
expectthattheycouldsellthebusiness
for$350,000.
Required
WhatistheROCEofthisinvestment
(usingtheaverage
investment
method)?
 13.0%
 15.3%
 18.0%
 21.2%

Solution

2.2.2 BenefitsofusingROCE/ARR
ROCEmethod isa quickandsimplecalculation
thatinvolves
thefamiliarconcept
ofa percentage
return.
Unlikepayback perioditdoesconsider
thewholeofa project’s
life.
Thefactthatitgivesa percentagemeasure meansthatROCEmakes iteasytocompare two
G
investment
options eveniftheyareofdifferent
sizes. H

2.2.3 GeneralproblemswithROCE/ARR
(a) Itisbasedonaccounting profits
andnotrelevantcashflows.ROCEistheonlyinvestment
appraisaltechnique
notbasedonrelevant cashflows.
(b) Itisa relative
measure
(iea percentage)
rather
thananabsolute measure
andtherefore
takesnoaccount ofthesizeoftheinvestment.
(c) Likethepayback method,ROCEignores thetimevalueofmoney.

Examfocus point
ROCE/ARR istheonlyproject
appraisal
techniquethatisbasedonprofit
instead
ofcashflow.
So,inthistechnique
(only)youwillneedtoincludedepreciation
inyourcalculations.

3 Time value of money and discounting

Akeyproblem withbothpayback andROCEisthattheybothignorethetimevalueofmoney;
thisisanimportantconcept
thatisusedinthemoresophisticated
investment
appraisal
techniquesthatarecovered
intheremainderofthischapter.
3.1 Time value of money
Theideathatreceiving
$100inthefutureisworthlessthanhaving
$100todayisanexample
of
theconcept
ofmoney havinga ‘timevalue’.

106 Financial
Management
(FM)

Page 128 of 641

 q
Illustration 3: Time value

Ifa projectinvolvedthe outlayof $20,000today and provideda definitereturnof $21,000inone

year’stime.
Required
Wouldyou accept it ifyou couldget a returnof 6%on investmentsof similarrisk?

Solution
Wecan lookat thisintwoways:
Firstly,ifyou had $20,000today and investedit forone year ina projectof similarriskat 6%then
you wouldhave$20,000×1.06=$21,200(thisapproach is calledcompounding).
Thisis morethan is generated by the project,so the projectis not acceptable.
Alternatively,wecan reducethe futurecash flowof $21,000to reflectits worthifit was received
today:
$21,000×1/1.06=$19,811
Thisapproach is calleddiscounting.
$19,811 is the valuetoday, or the present value,of receiving$21,000inone year’stimeto reflect
the returnavailableto investors.
Again,wecan see that the projectis unacceptable because thispresentvalueis belowthe cost
(today)of the projectof $20,000.

3.1.1 Discounting and present values

Theprocessof discountingfuturecash flowsback to theirpresent valueis oftencalleddiscounted
cash flow(DCF)analysis.Itis importantinprojectappraisalbecause many projectsinvolve
investingmoneynowand receivingreturnsin many differenttimeperiodsin the future.
G H

DCFanalysisis an importanttoolinallowingthe valueof futurecash flowsto be compared

against moneyinvestedtoday.

Presentvalue:Thecash equivalentnowof moneyreceived(orpaid)inthe future.

KEY
TERM
3.2 Discount factors
Inthe previousillustration,a futurecash flowreceivedin1year was discountedback to a present
valueby multiplyingby 1/1.06.
Thisis the same as multiplyingthe cash flowsby 0.943(ie1/1.06=0.943),and thisfigureis an
exampleof a discountfactor.
Thisdiscountfactor reflectsthe investor’srequiredreturn(alsoreferredto as a cost of capital)of
6%and the timingof the futurecash flow(inone year’stime).
Inthe examyou are providedwitha table of discountfactors to apply dependingon the rate of
returnexpectedand the timingof the futurecash flow.
Theseare shownas an Appendixat the back of thisworkbookas a present valuetable.
Aswellas includinga widerange of discountfactors,thistable also showsthe formulafor
calculatingany discountfactor.

Formula provided

Discountfactor =(1+ r)–n

Wherer =discount/interestrate and n =timeperiodof cash flow

5:Investment
decision 107

Page 129 of 641

 q
Examfocus point
Discount
tablesareprovided
intheexam,buttheycoveronlyintegervalues
ofrandupto15
yearsahead.Ifyouneedtocalculate
a discount
ratethatisnotaninteger
(eg10.5%)
orisnot
intherangeofvalues
coveredbythetables,youwillneedtousethediscounting
formula
provided.

3.3 Conventions used in DCF

• Time0 istoday,itisusualtoassume thattime0 isthefirstdayofa project,
iethestartofits
firstyear.
• Time1isthelastdayofthefirstperiod(normally a year).
• Acashflowwhichoccurs during thecourse ofa timeperiodisassumedtooccurallatonceat
theendofthetimeperiod (attheendoftheyear).
• Acashflowwhichoccurs atthestartofa timeperiod istakentooccurattheendofthe
previoustimeperiodega cashoutlayof$5,000atthestartoftimeperiod 2 istakentooccur
attheendoftimeperiod 1.
Activity4: Discounting

Calculate
thepresent
valueof$100,000received
inseven
years’time,ifthecostofcapitalis12%.
(Giveyouranswer
tothenearest$100.)

Solution

G H

3.4 Annuities

Annuity:
Aseries
ofequalcashflows.
KEY
TERM
Ifa project
involves
equalannualcashflows(orannuities)
theneachfuturecashflowcanbe
discountedseparately
backtoa presentvalue,butitisquicker
tousea singlediscount
factor
(calledanannuityfactorora cumulative
discountfactor).
Illustration4: Annuities

Ifa project
involved
theoutlayof$20,000todayandprovided
a definitereturn
of$8,000per
yearforthreeyearswouldyouaccepttheproject?
Assume thatyoucouldgeta returnof6%oninvestments
ofsimilar
risk.

Solution
Thiscanbeanalysed asa series
ofindividual
calculations,
obtaining thediscount
factors
fromthe
present
valuetable(fromthe6%column fortimeperiods
1,2 and3):

108 Financial
Management
(FM)

Page 130 of 641

 q
Time 0 1 2 3
Cash flow (20,000) 8,000 8,000 8,000
Discountfactors 0.943 0.890 0.840
Presentvalue (20,000) 7,544 7,120 6,720
Netpresentvalue +1,384
Alternatively,this couldbe analysed morequicklyby usinga singlediscountfactor providedin
the annuitytable giveninthe Appendixto thisworkbook(hereusingthe 6%columnand time
period3).Thefigureobtainedis 2.673:thisis calledan annuity(orcumulativediscount)factor.
Time 0 1to 3
Cash flow (20,000) 8,000
Annuityfactor 2.673
Presentvalue (20,000) 21,384
Netpresentvalue +1,384

Theannuityfactor of 2.673representsthe additionof the individualdiscountfactorsused inthe

firstmethod(0.943+0.890+0.840).

Formula provided

Formulaforan annuityfactor:
1−(1+ r)−n
G
r H

Exam focus point

Annuitytables are providedinthe exam,but again onlycoverintegervaluesof r and up to 15
years ahead. Ifyou need to calculatea discountrate that is not an integeror is not inthe
range of valuescoveredby the tables, you willneed to use the formulaprovided.

Activity 5: Annuities

Afirmhas arranged a 10-yearlease at an annual rent of $17,264.Eachrentalpaymentis to be

made at the start of the year.
Required
Whatis the presentvalueof the lease at 12%?(Giveyouranswerto the nearest $.)

5:Investment
decision 109

Page 131 of 641

 q
Solution

3.4.1 Perpetuities

Perpetuity:
Anannuity
thatoccurs
fortheforeseeable
future.
KEY
TERM
Iftheseries
ofcashflowsdoesnothaveanenddate(ieitisexpected fortheforeseeable
future)
thenthisiscalleda perpetuity.
Thiscanbedealtwithbyapplying
a singlediscount
factor,
but
thisrequires
theuseofa formulawhichyouwillneedtolearn:

Formulato learn
Theformula
fordiscounting
a perpetuity
is:
1
r

G
Illustration5: Perpetuities H

Ifa project
involved
theoutlayof$20,000todayandprovided
a definite
return
of$3,000peryear
fortheforeseeable
future.
Required
Wouldyouaccepttheproject?
(Again,assume
thatyoucouldgeta return
of6%oninvestments
ofsimilar
risk.)

Solution
Theperpetuity
factorhereis:
1/0.06
So,thepresent
valueofthefuturecashflowsis$3,000×1/0.06=$50,000
Andthepresent
valueoftheinflows
exceedsthecostoftheproject,
sotheproject
isacceptable.

3.4.2 Delayedannuitiesandperpetuities
Theapproaches demonstrated
intheprevioussections
forannuities
andperpetuitiesassumethat
thecashflowsbeginintime1andvaluetheseannuitiesorperpetuities
fromtheperspective
of
theprecedingtimeperiodtowhenthecashflowsbegin(ietime0,a present value).
Wherethefirstcashflowinanannuityisnotreceived
fromtime1thisiscalleda delayed
annuity.
Wherethisisthecase,theapproachtovaluinganannuityorperpetuitymustbeslightly
adjusted.

110 Financial
Management
(FM)

Page 132 of 641

 q
Illustration6: Delayed perpetuity

Ifa project
involved
theoutlayof$20,000todayandprovided
a definite
return
of$3,000peryear
fortheforeseeable
future
startinginthreeyears’time.
Required
Wouldyouaccepttheproject?
(Again,assume
thatyoucouldgeta return
of6%oninvestments
ofsimilar
risk.)

Solution
Asbefore, theperpetuityfactorhereis:1/0.06
So,thevalueofthefuture cashflowsis$50,000,asbefore.
However, thisvalueisfromtheperspective ofthepreceding timeperiod
towhenthecashflows
beginandherethecashflowsbeginattime3 sothevalueisfromtheperspective oftime2 (the
preceding timeperiod).
Thiscanbeadjusted toa time0 presentvaluebytreatingthe$50,000asa one-offcashflow
receivedintime2 andmultiplying itbythediscount factorfromthepresent
valuetableforperiod
2 at6%of0.890.
$50,000×0.890=$44,500
Thisisnowa present valueand,because thisishigher
thanthecashoutflowof$20,000,the
projectisacceptable.

Activity6: Delayed annuity

G H

Anannuityof$3,000perannum
foreightyearsstartsattheendofthethirdyearandfinishes
at
theendofthetenthyear.
Required
Whatisthepresent
valueoftheannuity
ifthediscount
rateis6%?(Giveyouranswer
tothe
nearest
$.)

Solution

3.4.3 Constantgrowth
Ifa series
ofcashflowsdoesnothaveanenddate(ieitisexpected fortheforeseeable
future)
and
isgrowing ata constantrate,thenthiscanbeconverted
intopresentvalueterms
byapplying
a
singlediscountfactorandisknown asa growing perpetuity.
Thisrequirestheuseofthefollowingformulafortheannuity
factor,
thisiscovered
numerically
in
section4 ofChapter13.

5:Investment
decision111

Page 133 of 641

 q
Formulato learn
Theformula
fordiscounting
a constantly
growing
cashflowis:
1
r−g

Essentialreading

SeeChapter 5 Section
2 oftheEssential
Reading,
available
inthedigitaledition
oftheWorkbook,
forfurtherdiscussion
ofthisareamainly
foranyonewhohasnotstudied thisareafora whileand
wouldlikesomefurther background,
theapproachusedforevaluating
constantly growing
cashflowsisalsointroduced.
TheEssentialreadingisavailable
asanAppendix
ofthedigitaledition
oftheWorkbook.

4 Net present value (NPV)

TheNPVmethod usestheconcept ofdiscountingandrecognisesthetimevalueofmoney.

Thismethod comparesthepresent valueofallthecashinflowsfroma project
withthepresent
valueofallthecashoutflows
froma project. Thedifference,
theNPV,representsthechangein
wealthoftheinvestor
asa result
ofinvesting intheproject.
NpvValue
NPVpositive Return
frominvestment’s
cashinflows
inexcess
ofcostofcapital(undertake
project)
G H

NPVnegative Return
frominvestment’s
cashinflows
below
costofcapital(don’tundertake
project)
NPV=0 Return
frominvestment’s
cashinflows
sameascostofcapital(theproject
will
beonlyjustworthundertaking)

Note.Weassume thatthecostofcapitalistheorganisation’s
targetrateofreturn
forproposed
investment
projects.
Oneoftheadvantages ofNPVisthatitgivesa clearandobjective
decisionrulewhichisthata
project
isacceptable
ifitsNPViszeroorabove.

Activity7: NPV

LCHmanufactures product
Xwhichitsellsfor$5perunit.Variable
costsofproductionare
currently
$3perunit.SalesofproductXareestimated tobe75,000unitsperannum.
Anewmachine isavailable
whichwould cost$90,000butwhichcouldbeusedtomakeproductX
fora variable
costofonly$2.50perunit.Fixedcosts,however,
would increase
by$7,500per
annum asa directresult
ofpurchasing
themachine.
Themachine would haveanexpectedlifeoffouryearsanda disposalvalueof$10,000.
LCHexpects toearnatleast12%perannum fromitsinvestments.
Required
UsingNPVanalysis,
should
LCHacquire
themachine?

112 Financial
Management
(FM)

Page 134 of 641