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9609 · 6.1.4

Technological — practice questions

Practice and worked examples for 9609 Technological. Short previews only — attempt the full question in MarkScheme against the official scheme.

Worked example 1

Traditional bank faces fintech app rivals with instant mobile loans. Analyse one threat and one response.

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Threat: Disintermediation — customers switch for convenience and lower fees; bank loses younger segment and fee income.

Response: Invest in mobile app and API integration; use data analytics for personalised offers (CRM); partner/acquire fintech rather than pure defence — links 10.3 investment appraisal.

Worked example 2

A car parts manufacturer is considering investing $1,500,000 in an automated welding system. It is expected to reduce annual labour costs by $450,000 and generate an additional $150,000 in contribution per year. Annual maintenance costs will be $50,000. The system has a 5-year life. Calculate the Payback Period and the Average Rate of Return (ARR).

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1. Calculate Net Annual Cash Flow This is the net cash generated by the investment each year.

  • Cost Savings (Labour): +450,000450,000
  • Additional Contribution: +150,000150,000
  • New Annual Costs (Maintenance): -50,00050,000
  • Net Annual Cash Flow = 450,000+450,000 + 150,000 - 50,000=∗∗50,000 = **550,000**

2. Calculate Payback Period This measures how long it takes for the investment to pay for itself.

  • Formula: Payback Period = Initial Investment / Net Annual Cash Flow
  • Calculation: 1,500,000/1,500,000 / 550,000 = 2.73 years
  • To convert to years and months: 0.73 years * 12 months ≈ 8.76 months.
  • Answer: The payback period is 2 years and 9 months (approx).

3. Calculate Average Rate of Return (ARR) This measures the average annual profit as a percentage of the initial investment.

  • Step A: Total Profit: (Total Inflows) - (Initial Cost)
    • Total Inflows = $550,000/year * 5 years = $2,750,000
    • Total Profit = 2,750,000−2,750,000 - 1,500,000 = 1,250,0001,250,000
  • Step B: Average Annual Profit: Total Profit / Lifespan
    • Average Annual Profit = $1,250,000 / 5 years = $250,000
  • Step C: ARR Calculation: (Average Annual Profit / Initial Investment) * 100
    • ARR = (250,000/250,000 / 1,500,000) * 100 = 16.67%
  • Answer: The ARR is 16.67%. This can be compared to the company's target rate of return or the interest rate on a loan to finance the project.
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