Prepare a balanced investment recommendation
Use the appraisal result, assumptions, risks and objective to justify a clear action.
Exam scope and assessment notes
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. This topic covers future net cash flows, payback, ARR, NPV, IRR and supported investment decisions. Discounted payback and questions involving a residual value at the end of a project are excluded by Cambridge. Practice is self-checked, not an official Cambridge grade. Full timed Papers 1–4 and human subject-teacher review remain outstanding.
Before you begin
- Use AS Topics 1.5–1.6 for profit, depreciation and financial analysis, and Topic 2.1 for contribution. Keep accounting profit, project cash flow and the time value of money distinct.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
A project's NPV is positive. What is a useful next step?
What you will learn
- State a supported recommendation
- Use quantified evidence
- Explain a risk and decision condition
Structure the recommendation
State the preferred option and connect it to the objective. Use relevant figures: NPV at the required rate, IRR against a threshold, payback against a liquidity limit or ARR against a target.
Support the calculation with key cash-flow or profit assumptions. Explain a material risk, non-financial factor and condition that could change the recommendation.
Avoid claims stronger than the evidence
A forecast is not a guarantee. Identify how sales, costs, timing, capacity or rate could change the result and what management should monitor.
If methods conflict, explain their different focus and why the chosen method fits the objective. A sound answer may recommend a conditional trial, delay or rejection.
Pause and explain
IRR is 11% and required return is 13%. What should be reported?
Worked example
A project has NPV $21,000, IRR 14% against a 12% required return, and payback 4 years against a 5-year limit. Demand forecasts are uncertain. Give a provisional recommendation.
Show the worked solution
- Each stated financial criterion is met.
- NPV is positive by $21,000 and IRR exceeds the threshold by 2 percentage points.
- Proceed conditionally after validating demand and capacity.
Answer Proceed provisionally because it passes the stated criteria, subject to credible demand and capacity assumptions.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
A's NPV is $12,000 and B's $8,000. A may exceed available staff capacity. Give a two-part recommendation.
Give me a hint
Use the value difference and the capacity issue.
Compare my reasoning
- A leads by $4,000 NPV.
- Verify staffing before selection.
- If unresolved, choose or schedule a feasible alternative.
Prefer A on NPV only if staffing can be secured; otherwise select or schedule a feasible option.
Look for these in your work
- Difference quantified
- Capacity condition
- Fallback included
ARR is 19% against a 16% target; NPV is $2,000; payback 4.8 years against a 5-year limit. Energy costs are rising. Recommend an action.
Give me a hint
Recognise the thresholds but test the operating assumption.
Compare my reasoning
- It passes the stated ARR and payback rules and has positive base NPV.
- Higher energy costs may reduce future cash flow and profit.
- Recalculate under higher costs and proceed only if the case remains acceptable.
Proceed conditionally after an energy-cost sensitivity test; the base case passes but has a material cost risk.
Look for these in your work
- Criteria applied
- Risk linked to flows
- Condition actionable
A non-profit must choose between a high-NPV expansion serving fewer remote learners and a lower-NPV project improving remote access. How should it decide?
Give me a hint
Use the organisation's objective and measurable outcomes.
Compare my reasoning
- Compare NPV and funding needs.
- Assess access, learner numbers and service quality.
- Choose against the agreed objective and state the financial trade-off.
Use the approved access objective alongside NPV and funding feasibility; explain the lower return if inclusion is prioritised.
Look for these in your work
- Evidence compared
- Objective used
- Trade-off stated
Common mistakes
- Repeating calculations without a decision
- Presenting uncertain factors as proven
- Omitting conditions when forecasts are uncertain
What can you explain now?
What should a strong recommendation connect?
Compare with the explanation
Decision, appraisal evidence, assumptions and risks
Figures support a judgement when linked to the decision and its limitations.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
What should a project recommendation make clear?
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.