# Investment Appraisal: [Project name]

> Financial appraisal of a capital investment for a private-sector
> organisation: decision and options, incremental cash flows, assumptions
> register, discount rate (WACC and project hurdle), net present value
> (NPV), internal rate of return (IRR), modified IRR (MIRR), simple and
> discounted payback, profitability index (PI), sensitivity, switching
> values, scenarios, real options and the recommendation. Written as
> original practice guidance using standard corporate finance methods;
> public-sector appraisals in the UK follow the HM Treasury Green Book
> (2026 edition, updated 2026-02-05) and US federal analyses follow OMB
> Circular A-94 (the 1992 version, reinstated on 2025-04-08). Replace
> every `[bracketed]` value and every row marked *Example*. This is a
> document format, not financial, investment, tax, legal or accounting
> advice.

<!--
Guidance: How to use this template
- An investment appraisal answers one question: does this use of capital
  create more value than the next best alternative, at a return that
  compensates for its risk? It is the financial evidence behind a
  decision, not the decision record itself.
- Boundaries. The strategic, commercial and management argument for an
  initiative lives in Business Case (`business/business-case`); the wider
  "can it be done" assessment (technical, legal, operational, schedule)
  lives in Feasibility Study (`business/feasibility-study`). This
  template carries the numbers both of them cite. The request for
  authority to spend is Capex Request (`finance/capex-request`), and the
  look-back after delivery is Post-Investment Review
  (`finance/post-investment-review`).
- Fill in this order: options (section 2), conventions (section 3),
  assumptions (section 4), discount rate (section 5), then the cash flow
  table (section 6). Compute metrics last. Every number in sections 6 to
  9 must trace to an assumption ID (ASM-NNN).
- The worked example is the fictional Corvid Commerce Group (SaaS
  retailer, IFRS reporter, functional currency EUR, financial year =
  calendar year, parent Corvid Commerce Group plc, operating companies
  in Germany, the UK, the US and Vietnam).
  The project is warehouse automation at the Leipzig fulfilment centre
  (capex line CAP-002 in Annual Budget, `finance/annual-budget`). The
  same project runs through Capex Request and Post-Investment Review.
  Amounts are EUR thousand, nominal, after tax, unless stated.
- Common pitfall: a polished NPV built on optimistic, untraceable
  savings. Spend more effort on the baseline and the savings evidence
  than on the formulas.
-->

## Document control

<!-- Guidance: One appraisal per decision. If the scope, cost or timing changes materially before approval, issue a new version and keep the old one; the post-investment review compares actuals with the approved version, so the approved version must stay retrievable. -->

| Field | Value |
|---|---|
| Document ID | [APR-YYYY-NNN] *Example:* APR-2027-002 |
| Project name and capex ID | [Name, capex register ID] *Example:* Leipzig warehouse automation, CAP-002 |
| Sponsoring entity and business unit | [Legal entity / segment] *Example:* Corvid Commerce GmbH (Germany), Fulfilment |
| Appraisal date (valuation date, year 0) | YYYY-MM-DD *Example:* 2027-03-15, year 0 = FY2027 |
| Currency, units and price basis | [EUR thousand, nominal] |
| Appraisal horizon | [Years and reason] *Example:* 8 years, economic life of the sortation equipment |
| Discount rate used | [Rate and source] *Example:* 9.0% nominal after tax (group WACC 8.0% plus 1.0 point category premium) |
| Version | [0.1] |
| Status | [Draft / In review / Approved / Superseded] |
| Owner | [@project-sponsor] |
| Prepared by | [@fpa-analyst] |
| Approvers/reviewers | [@cfo], [@head-of-fpa], [@group-treasurer], [@tax-lead] |
| Last updated | YYYY-MM-DD |
| Classification | [Confidential: management and board] |
| Model file | [Path, version and checksum of the appraisal model] |
| Related documents | Capex Request [CXR-ID], Business Case [ID], Feasibility Study [ID] |

### Approvals

| Role | Name | Decision | Date |
|---|---|---|---|
| Project sponsor | [@name] | [Submit] | YYYY-MM-DD |
| Head of FP&A (model review) | [@name] | [Reviewed / Returned] | YYYY-MM-DD |
| Group tax (tax assumptions) | [@name] | [Reviewed / Returned] | YYYY-MM-DD |
| Chief Financial Officer | [@name] | [Endorse / Return] | YYYY-MM-DD |

### Revision history

| Version | Date | Author | Change summary |
|---|---|---|---|
| 0.1 | YYYY-MM-DD | [@name] | First draft: options and baseline |
| 0.5 | YYYY-MM-DD | [@name] | *Example:* Supplier quotes received, capex updated to EUR 2,800k |
| 1.0 | YYYY-MM-DD | [@name] | *Example:* Reviewed by FP&A and tax, attached to capex request CXR-2027-002 |

## Contents

<!-- Guidance: Keep this list aligned with the headings. -->

1. [Decision summary and recommendation](#1-decision-summary-and-recommendation)
2. [Decision context and options](#2-decision-context-and-options)
3. [Cash flow scope and conventions](#3-cash-flow-scope-and-conventions)
4. [Assumptions register](#4-assumptions-register)
5. [Discount rate](#5-discount-rate)
6. [Cash flow forecast](#6-cash-flow-forecast)
7. [Appraisal metrics](#7-appraisal-metrics)
8. [Sensitivity, switching values and scenarios](#8-sensitivity-switching-values-and-scenarios)
9. [Risks, real options and non-financial factors](#9-risks-real-options-and-non-financial-factors)
10. [Option comparison](#10-option-comparison)
11. [Benefits baseline and tracking](#11-benefits-baseline-and-tracking)
12. [Model reference and checks](#12-model-reference-and-checks)
13. [Glossary and references](#13-glossary-and-references)

## 1. Decision summary and recommendation

<!-- Guidance: Write this last, on one screen. State the decision asked for, the preferred option, the headline metrics against the hurdle, the two or three assumptions that drive the answer and the switching values. Pitfall: reporting IRR alone, which hides scale and ranking problems. -->

**Decision requested:** [Approve / Reject / Defer] investment of [currency amount] in [project], to be authorised through capex request [CXR-ID].

| Item | Value | Hurdle or comparison |
|---|---|---|
| Preferred option | *Example:* Option A, full automation (conveyors, sortation, pick-to-light) | Highest NPV of the mutually exclusive options |
| Initial investment (year 0) | *Example:* EUR 2,900k (capex 2,800 plus spare-parts inventory 100) | Within FY2027 capex envelope line CAP-002 |
| NPV at 9.0% | *Example:* EUR 437.2k | Greater than zero |
| IRR | *Example:* 12.66% | Above 9.0% hurdle |
| MIRR (reinvestment at 9.0%) | *Example:* 10.93% | Above 9.0% hurdle |
| Payback / discounted payback | *Example:* 5.08 years / 6.96 years | Group guideline: discounted payback within economic life |
| Profitability index | *Example:* 1.151 | Greater than 1.0 |
| Switching values | *Example:* NPV reaches zero if savings fall 16.5% or capex rises 19.7% | Compare with forecast error of similar projects |
| Probability-weighted NPV | *Example:* EUR 324.2k (scenarios in section 8.3) | Greater than zero |

**Recommendation** *(Example)*: approve Option A. It has the highest NPV, it clears the hurdle in the base and upside cases, and the downside case (capex 10% over and savings 20% short) gives a negative NPV of EUR 315.3k. The decision therefore rests on the labour-saving assumption (ASM-004), which is supported by a time-and-motion study and two reference sites. Make release of the final 10% payment conditional on site acceptance and 30 days of stable operation (CON-001 in Capex Request (`finance/capex-request`)).

## 2. Decision context and options

<!-- Guidance: An appraisal is only as good as the options it compares. Always include "do nothing" or "do minimum" as the baseline, and at least one lower-cost alternative. Questions: what problem does this solve, what happens if we do nothing, which options were rejected early and why? Pitfall: comparing the preferred option only with a deliberately weak alternative. -->

### 2.1 Problem and objective

Describe the problem in operational terms, with numbers from the current state. *Example:* the Leipzig fulfilment centre ships about 1.1 million orders a year (FY2026, the whole of Corvid's commerce volume; the FY2027 budget assumes 1.2 million) with manual picking. Peak-season overtime and agency staff raise the cost per order by about a third in Q4, and the mispick rate is above the service target. The objective is to cut the cost per order and hold peak capacity without adding floor space.

Link to the strategic priority this supports. *Example:* PRI-004 "Automate fulfilment" in the FY2027 budget.

### 2.2 Options

| Option ID | Description | Treatment | Reason |
|---|---|---|---|
| OPT-0 *(Example)* | Do nothing: manual picking, agency staff at peak | Baseline | All other options are measured as increments against this |
| OPT-A *(Example)* | Full automation: conveyors, automated sortation, pick-to-light, warehouse control software | Appraised | Preferred |
| OPT-B *(Example)* | Partial automation: sortation only, manual picking retained | Appraised | Lower capital, lower savings |
| OPT-C *(Example)* | Outsource peak volume to a third-party logistics provider | Rejected at long list | Service-level risk and loss of same-day cut-off; quote did not beat OPT-0 in peak |
| OPT-D *(Example)* | Relocate to a new automated site | Rejected at long list | Lease commitment and timing outside the planning horizon |

Leasing the equipment is a **financing** choice, not an investment option: decide first whether the asset is worth having (this appraisal), then compare lease and purchase at the after-tax cost of borrowing in a separate lease-versus-buy analysis.

### 2.3 Mutually exclusive or independent

State whether options are mutually exclusive (only one can be chosen) or independent. For mutually exclusive options, rank by NPV, not by IRR or PI (see section 10). For independent projects competing for a fixed capital budget, rank by PI within the budget and confirm the combination with the highest total NPV.

## 3. Cash flow scope and conventions

<!-- Guidance: Most appraisal errors are scope errors, not formula errors. State every convention once here and apply it everywhere. Pitfall: deducting interest in the cash flows and then discounting at WACC, which counts the cost of debt twice. -->

### 3.1 Incremental principle

Include only cash flows that change because of the decision, measured against the baseline option:

- **Include**: capital expenditure, installation and commissioning, changes in operating costs and revenues, changes in working capital, tax effects (including tax relief on depreciation), residual or disposal value, decommissioning costs, opportunity costs of assets the project uses that could otherwise be sold or used elsewhere.
- **Exclude**: sunk costs (feasibility work already paid), allocated overheads that do not change, accounting depreciation as such (only its tax effect is a cash flow), and financing flows (interest and principal), because the discount rate already prices the cost of finance.
- **Treat carefully**: cannibalisation of existing revenue, savings that are only "capacity freed" unless the capacity is actually removed or reused, and one-off implementation operating costs (training, process redesign), which are cash costs even though they are expensed.

### 3.2 Conventions used

| Convention | Choice | Example |
|---|---|---|
| Price basis | [Nominal / Real] | *Example:* Nominal: savings escalate at about 2% a year, discount rate is nominal |
| Timing | [End-of-year / mid-year / monthly] | *Example:* Year 0 outlays at the valuation date; operating flows at year end |
| Tax | [Rate, timing, loss use] | *Example:* 30% combined rate, paid in the year the profit arises; tax losses relieved within the German tax group |
| Tax depreciation | [Method and life] | *Example:* Straight line over 8 years, EUR 350k a year from year 1 |
| Currency | [Functional currency, FX source] | *Example:* EUR; no foreign-currency flows (supplier quote fixed in EUR) |
| Residual value | [Method] | *Example:* Disposal value EUR 150k in year 8, fully taxable because tax book value is nil |
| Working capital | [Items] | *Example:* Spare-parts inventory EUR 100k at year 0, released in year 8 |
| Inflation | [Index and rate] | *Example:* 2.0% a year on labour and maintenance, from the group planning assumptions |

Keep the cash flows and the discount rate consistent: nominal flows with a nominal rate, real flows with a real rate, pre-tax flows with a pre-tax rate. Convert a rate between nominal and real with the Fisher relation, not by subtraction, when inflation is material:

$$
(1 + r_{nominal}) = (1 + r_{real}) \times (1 + i)
$$

### 3.3 Tax, inflation and FX treatment

Record the tax rate by jurisdiction, any investment incentives or grants (and whether they are conditional), and the timing of tax payments. If flows arise in more than one currency, forecast each in its own currency and convert at forward rates or at a consistent parity assumption; do not mix a EUR discount rate with USD flows. *Example:* no grants assumed; a regional investment grant was explored and excluded because eligibility was not confirmed (ASM-010).

## 4. Assumptions register

<!-- Guidance: Every input gets an ID, a value, a source, an owner and a confidence rating. The register is what reviewers challenge, and what the post-investment review checks later. Pitfall: assumptions that exist only inside spreadsheet cells. -->

| ID | Assumption | Value | Source and evidence | Owner | Confidence |
|---|---|---|---|---|---|
| ASM-001 *(Example)* | Capital cost, equipment and installation | EUR 2,800k including EUR 150k contingency | Two supplier quotes, fixed price to 2027-06-30; see CXR-2027-002 cost breakdown | [@project-manager] | High |
| ASM-002 *(Example)* | Spare-parts inventory | EUR 100k at year 0, released year 8 | Supplier recommended spares list | [@maintenance-lead] | Medium |
| ASM-003 *(Example)* | Go-live date | 2028-01-01 | Supplier schedule, 30 weeks from order | [@project-manager] | Medium |
| ASM-004 *(Example)* | Net pre-tax operating savings | Year 1 EUR 520k (ramp-up), year 2 EUR 680k, then about 2% a year to EUR 766k in year 8 | Time-and-motion study, agency invoices FY2026, two reference sites; net of maintenance contract and energy. Cross-check: about 1.17 million orders in FY2029 x the EUR 0.65 fall in cost per order (BEN-002) = about EUR 760k gross, less about EUR 80k of maintenance contract and energy = EUR 680k | [@fulfilment-director] | Medium |
| ASM-005 *(Example)* | Combined tax rate | 30%, held flat for simplicity | Group tax; check municipal trade tax rate for Leipzig. German corporate income tax is legislated to fall by one point a year from 2028 to 10% in 2032 (as of 2026-10; check the current law and model the enacted rate path, see section 8.1) | [@tax-lead] | Medium |
| ASM-006 *(Example)* | Tax depreciation | Straight line, 8 years | Group tax; confirm local depreciation tables. Check whether the optional declining-balance allowance (up to 30% a year) for movable assets acquired before 2028-01-01 applies; if elected, tax relief comes earlier (see section 8.1) | [@tax-lead] | Medium |
| ASM-007 *(Example)* | Economic life | 8 years | Supplier design life 10 years, shortened for technology risk | [@cto] | Medium |
| ASM-008 *(Example)* | Disposal value, year 8 | EUR 150k | Supplier buy-back indication | [@procurement] | Low |
| ASM-009 *(Example)* | Discount rate | 9.0% | Section 5 | [@group-treasurer] | High |
| ASM-010 *(Example)* | Investment grant | None assumed | Eligibility not confirmed | [@cfo] | n/a |

Confidence scale: High = contract, quote or audited data; Medium = study or benchmark; Low = indication or judgement. Run sensitivity on every Medium and Low input.

## 5. Discount rate

<!-- Guidance: Use the cost of capital for the risk of this project, not the company's borrowing rate. Start from the group WACC, then adjust only for risk that differs systematically from the group average. Pitfall: adding large arbitrary premiums for risks that belong in the cash flows (delays, overruns), which double-counts them. -->

### 5.1 Cost of equity and WACC

$$
k_e = r_f + \beta \times ERP
$$

$$
WACC = \frac{E}{D+E} \times k_e + \frac{D}{D+E} \times k_d \times (1 - T)
$$

| Input | Value *(Example)* | Source and date |
|---|---|---|
| Risk-free rate, r_f | 2.65% | [Long-dated EUR government bond yield, date] |
| Equity beta, beta | 1.20 | [Peer median, relevered at target leverage] |
| Equity risk premium, ERP | 5.5% | [Group treasury house view, date] |
| Cost of equity, k_e | 9.25% | 2.65% + 1.20 x 5.5% |
| Pre-tax cost of debt, k_d | 4.5% | [Marginal borrowing cost under the revolving facility] |
| Tax rate, T | 30% | ASM-005 |
| After-tax cost of debt | 3.15% | 4.5% x (1 - 0.30) |
| Target weights E / D | 80% / 20% | [Capital structure policy] |
| WACC | 8.03%, rounded to 8.0% | 0.80 x 9.25% + 0.20 x 3.15% = 7.40% + 0.63% |

### 5.2 Project hurdle rate

| Project category | Premium over WACC | Rationale |
|---|---|---|
| Replacement and compliance *(Example)* | 0.0 points | Risk similar to existing operations |
| Efficiency and cost reduction *(Example)* | 1.0 point | Savings depend on operational change |
| Growth, new market or product *(Example)* | 3.0 points | Revenue risk above group average |

*Example:* CAP-002 is an efficiency project, so the hurdle is 8.0% + 1.0 = 9.0%. Record who sets the premiums and when they were last reviewed; the premiums are a policy choice, and they belong in the capital allocation policy, not in each appraisal.

For public-sector appraisals use the official discount rate instead: the Green Book social time preference rate in the UK (HM Treasury published an independent discount rate review on 2026-06-30; check whether a new rate has been adopted) and the OMB Circular A-94 rates in the US federal government. Current-year A-94 discount rates are issued by OMB memorandum (for 2026, M-26-09 of 2026-03-06, as reported); check the latest memorandum before use.

## 6. Cash flow forecast

<!-- Guidance: Show the full table, year by year, with the discount factors. Reviewers should be able to recompute every present value with a calculator. Pitfall: hiding the terminal year, where residual values and working-capital release often sit. -->

Discount factor for year t at rate r:

$$
DF_t = \frac{1}{(1 + r)^t}
$$

| Year | FY | Capex and working capital | Pre-tax savings | Tax depreciation | Tax at 30% | Net cash flow | DF at 9.0% | Present value | Cumulative cash | Cumulative PV |
|---|---|---|---|---|---|---|---|---|---|---|
| 0 *(Example)* | 2027 | (2,900.0) | 0.0 | 0.0 | 0.0 | (2,900.0) | 1.0000 | (2,900.0) | (2,900.0) | (2,900.0) |
| 1 *(Example)* | 2028 | 0.0 | 520.0 | 350.0 | (51.0) | 469.0 | 0.9174 | 430.3 | (2,431.0) | (2,469.7) |
| 2 *(Example)* | 2029 | 0.0 | 680.0 | 350.0 | (99.0) | 581.0 | 0.8417 | 489.0 | (1,850.0) | (1,980.7) |
| 3 *(Example)* | 2030 | 0.0 | 694.0 | 350.0 | (103.2) | 590.8 | 0.7722 | 456.2 | (1,259.2) | (1,524.5) |
| 4 *(Example)* | 2031 | 0.0 | 708.0 | 350.0 | (107.4) | 600.6 | 0.7084 | 425.5 | (658.6) | (1,099.0) |
| 5 *(Example)* | 2032 | 0.0 | 722.0 | 350.0 | (111.6) | 610.4 | 0.6499 | 396.7 | (48.2) | (702.3) |
| 6 *(Example)* | 2033 | 0.0 | 736.0 | 350.0 | (115.8) | 620.2 | 0.5963 | 369.8 | 572.0 | (332.5) |
| 7 *(Example)* | 2034 | 0.0 | 751.0 | 350.0 | (120.3) | 630.7 | 0.5470 | 345.0 | 1,202.7 | 12.5 |
| 8 *(Example)* | 2035 | 205.0 | 766.0 | 350.0 | (124.8) | 846.2 | 0.5019 | 424.7 | 2,048.9 | 437.2 |

Notes on the example:

- Tax each year = 30% x (savings - 350). Year 1: 0.30 x (520 - 350) = 51.0.
- Year 8 terminal items: disposal value 150 less tax 45 (fully taxable) = 105, plus release of spare-parts inventory 100, so 205 in the capex and working capital column. Year 8 net cash flow = 766 - 124.8 + 205 = 846.2.
- Discount factors are shown to four decimals; present values are computed from unrounded factors and agree with the four-decimal factors to within 0.1.

## 7. Appraisal metrics

<!-- Guidance: Report NPV as the primary measure and the others as supporting information. Explain what each one tells the reader and where it misleads. Pitfall: treating payback as a measure of value; it ignores everything after the cut-off. -->

### 7.1 Net present value

$$
NPV = \sum_{t=0}^{N} \frac{CF_t}{(1 + r)^t}
$$

*Example:* sum of present values of years 1 to 8 = 3,337.2; less initial investment 2,900.0; NPV = EUR 437.2k. A positive NPV means the project is expected to return more than the 9.0% required return, by EUR 437.2k in today's money.

### 7.2 Internal rate of return

IRR is the rate at which NPV equals zero:

$$
\sum_{t=0}^{N} \frac{CF_t}{(1 + IRR)^t} = 0
$$

*Example:* IRR = 12.66%, solved iteratively (check: NPV at 12.66% is zero to within EUR 0.1k). IRR is reliable here because the cash flows change sign only once (one outflow, then inflows). Where flows change sign more than once (for example a mid-life overhaul or a decommissioning cost), there can be several IRRs or none: use NPV and MIRR instead.

### 7.3 Modified internal rate of return

MIRR compounds positive flows forward at a reinvestment rate and discounts negative flows at a finance rate, which removes the multiple-IRR problem and the implied reinvestment at the IRR:

$$
MIRR = \left( \frac{FV(\text{positive flows at } r_{reinvest})}{PV(\text{negative flows at } r_{finance})} \right)^{1/N} - 1
$$

*Example:* with both rates at 9.0%, the future value of years 1 to 8 inflows at year 8 is EUR 6,649.6k; the present value of outflows is EUR 2,900.0k; MIRR = (6,649.6 / 2,900.0)^(1/8) - 1 = 10.93%.

### 7.4 Payback and discounted payback

Simple payback is the time until cumulative undiscounted cash flow turns positive; discounted payback uses cumulative present values. Interpolate within the year:

$$
Payback = (t - 1) + \frac{|\text{cumulative at } t-1|}{CF_t}
$$

*Example:* simple payback = 4 + 658.6 / 610.4 = 5.08 years. Discounted payback = 6 + 332.5 / 345.0 = 6.96 years. Both fall within the 8-year life, but discounted payback is close to the end of life, which signals that value depends on the later years.

### 7.5 Profitability index

$$
PI = \frac{PV(\text{future cash flows})}{\text{Initial investment}} = 1 + \frac{NPV}{\text{Initial investment}}
$$

*Example:* PI = 3,337.2 / 2,900.0 = 1.151. Use PI to rank independent projects under a capital constraint, not to choose between mutually exclusive options.

### 7.6 Metric summary

| Metric | Base case *(Example)* | Decision rule | Main limitation |
|---|---|---|---|
| NPV | EUR 437.2k | Accept if greater than zero; rank exclusive options by NPV | Sensitive to the discount rate and terminal values |
| IRR | 12.66% | Accept if above hurdle | Multiple or no IRR with non-conventional flows; ignores scale |
| MIRR | 10.93% | Accept if above hurdle | Depends on the chosen reinvestment rate |
| Payback | 5.08 years | Within policy limit | Ignores time value and flows after payback |
| Discounted payback | 6.96 years | Within economic life | Ignores flows after payback |
| PI | 1.151 | Accept if greater than 1.0 | Misleading for exclusive options of different size |

## 8. Sensitivity, switching values and scenarios

<!-- Guidance: Test each Medium or Low confidence assumption one at a time, then combine them into coherent scenarios. Show switching values, because decision makers understand "how wrong can we be" better than a single NPV. Pitfall: symmetric plus or minus 10% on everything, which hides the fact that some inputs are far more uncertain than others. -->

### 8.1 One-at-a-time sensitivity

| Input changed | Change | NPV (EUR k) *(Example)* | IRR *(Example)* | Change in NPV |
|---|---|---|---|---|
| Base case | n/a | 437.2 | 12.66% | n/a |
| Capital cost (ASM-001) | +10% | 215.3 | 10.67% | (221.9) |
| Capital cost (ASM-001) | -10% | 659.1 | 14.97% | 221.9 |
| Operating savings (ASM-004), all years | -10% | 171.9 | 10.46% | (265.3) |
| Operating savings (ASM-004), all years | +10% | 702.5 | 14.77% | 265.3 |
| Operating savings (ASM-004), all years | -20% | (93.4) | 8.19% | (530.6) |
| Tax rate (ASM-005) | 33% | 379.3 | 12.19% | (57.9) |
| Tax rate path (ASM-005), illustrative | Combined rate falls by about 1.05 points a year from 2028 to about 24.7% from 2032 | 515.3 | 13.26% | 78.1 |
| Tax depreciation (ASM-006), illustrative | Declining balance at 30%, switching to straight line | 509.0 | 13.52% | 71.8 |
| Disposal value (ASM-008) | nil | 384.5 | 12.27% | (52.7) |
| Discount rate (ASM-009) | 8.0% | 574.3 | 12.66% | 137.1 |
| Discount rate (ASM-009) | 10.0% | 308.1 | 12.66% | (129.1) |
| Discount rate (ASM-009) | 11.0% | 186.5 | 12.66% | (250.7) |

Capital cost changes also change tax depreciation; the model recalculates both. The two illustrative tax rows apply German measures enacted in 2025 (as of 2026-10; confirm with the tax lead before use): a combined rate of 30% less 1.055 points for each point of corporate income tax cut (the solidarity surcharge moves with it), giving 28.95% in 2028 and 24.73% from 2032, with the disposal taxed at the final-year rate; and declining-balance depreciation of 840, 588, 411.6, 288.1, 201.7 and then 156.9 a year, which sums to 2,800. Both raise NPV, together to about EUR 600.3k (IRR 14.23%). The base case keeps the flat 30% rate and straight-line relief because the recommendation does not depend on them: it is conservative to leave them out.

### 8.2 Switching values

A switching value is the change in one input, holding all others at base, that brings NPV to zero.

| Input | Base | Switching value *(Example)* | Change from base | Comment |
|---|---|---|---|---|
| Operating savings | 100% of ASM-004 | 83.5% of ASM-004 | -16.5% | Reference sites achieved 90% to 105% of plan |
| Capital cost | EUR 2,800k | EUR 3,352k | +19.7% | Fixed-price quote; contingency already included |
| Discount rate | 9.0% | 12.66% (the IRR) | +3.66 points | Well above any plausible hurdle change |

### 8.3 Scenarios

| Scenario | Definition *(Example)* | NPV (EUR k) | IRR | Weight | Weighted NPV |
|---|---|---|---|---|---|
| Downside | Capex +10%, savings -20% | (315.3) | 6.45% | 25% | (78.8) |
| Base | All assumptions at register values | 437.2 | 12.66% | 50% | 218.6 |
| Upside | Savings +10%, disposal value EUR 250k | 737.6 | 15.00% | 25% | 184.4 |
| Probability-weighted | | | | 100% | 324.2 |

Scenario weights are a judgement; record who set them. A positive probability-weighted NPV with a negative downside means the project is worth doing if the organisation can absorb the downside loss; say so explicitly.

```mermaid
flowchart LR
    A[Assumptions register] --> B[Base case cash flows]
    B --> C[NPV, IRR, MIRR, PI, payback]
    A --> D[One-at-a-time sensitivity]
    D --> E[Switching values]
    A --> F[Coherent scenarios]
    F --> G[Probability-weighted NPV]
    C --> H{Decision}
    E --> H
    G --> H
```

## 9. Risks, real options and non-financial factors

<!-- Guidance: Put quantifiable risks into the cash flows or scenarios; list the rest here with owners. Describe any flexibility the project creates or destroys (expand, defer, abandon). Pitfall: claiming large strategic option value with no evidence, to rescue a negative NPV. -->

### 9.1 Risk register extract

| Risk ID | Risk | Effect on appraisal | Mitigation | Owner |
|---|---|---|---|---|
| RSK-001 *(Example)* | Go-live slips one quarter | Year 1 savings fall by about a quarter | Penalty clause for supplier delay; parallel manual run | [@project-manager] |
| RSK-002 *(Example)* | Savings ramp-up slower than planned | NPV falls by about EUR 33.4k per 10% shortfall in year 1 savings | Training plan, supplier on site for 8 weeks | [@fulfilment-director] |
| RSK-003 *(Example)* | Order volume falls below 0.9 million a year | Labour savings partly lost | Volume covenant in the business case; reassess at stage gate | [@coo] |
| RSK-004 *(Example)* | Works council consultation delays changes to shift patterns | Savings start later | Early consultation, redeployment plan | [@hr-director] |

*Example:* the RSK-002 effect is 10% of year 1 savings (EUR 52.0k) after tax at 30% (EUR 36.4k), discounted with the year 1 factor 0.9174, which gives EUR 33.4k. Tax depreciation is unchanged, so only the savings and their tax move. Replace these figures with your model output.

### 9.2 Real options

| Option | Description *(Example)* | Treatment |
|---|---|---|
| Expand | Layout reserves space for a second sortation loop if volume grows above 1.5 million orders a year | Described qualitatively; not included in NPV |
| Defer | Waiting one year keeps the quote at risk and loses one year of savings | Considered; deferral NPV lower than proceeding |
| Abandon | Supplier buy-back indication gives a floor value for the equipment | Disposal value shown in ASM-008 |

Only include option value in the headline NPV when it is valued with a stated method (decision tree or option pricing) and the inputs are evidenced.

### 9.3 Non-financial factors

List factors that matter to the decision but are not in the NPV: health and safety (less manual lifting), service quality (mispick rate), employee impact and consultation duties, environmental effects (energy use), data and cyber risk of new control software, and dependency on one supplier. State for each whether it supports or weakens the case.

## 10. Option comparison

<!-- Guidance: Compare the appraised options on the same basis (same horizon, same conventions, same discount rate). For exclusive options of different size, show the incremental cash flows between them. Pitfall: choosing the option with the highest IRR or PI when another option adds more value. -->

| Metric *(Example)* | OPT-A Full automation | OPT-B Sortation only | Increment A minus B |
|---|---|---|---|
| Initial investment (EUR k) | 2,900.0 | 1,550.0 | 1,350.0 |
| NPV at 9.0% (EUR k) | 437.2 | 262.7 | 174.5 |
| IRR | 12.66% | 13.11% | 12.14% |
| MIRR | 10.93% | 11.15% | n/a |
| PI | 1.151 | 1.170 | n/a |
| Payback (years) | 5.08 | 4.99 | n/a |
| Discounted payback (years) | 6.96 | 6.81 | n/a |

*Example* OPT-B inputs: capex EUR 1,500k, spares EUR 50k, savings EUR 290k in year 1 and EUR 370k in year 2, then EUR 377k, 385k, 393k, 401k, 409k and 417k in years 3 to 8 (about 2% a year, rounded to whole EUR thousand), disposal value EUR 80k, tax depreciation 1,500 / 8 = 187.5 a year, same tax and discount conventions.

OPT-B has the higher IRR and PI, but OPT-A adds EUR 174.5k more value. The incremental investment of EUR 1,350k earns 12.14%, above the 9.0% hurdle, so the extra capital in OPT-A is worth spending. Choose OPT-A unless capital is rationed so tightly that the EUR 1,350k would earn more elsewhere.

## 11. Benefits baseline and tracking

<!-- Guidance: Fix the baseline and the measures now, so the post-investment review can compare like with like. Pitfall: measuring benefits after the event against a baseline nobody recorded. -->

| Benefit ID | Measure | Baseline (date, source) | Target and date | Data source | Owner |
|---|---|---|---|---|---|
| BEN-001 *(Example)* | Net operating savings vs baseline | EUR 0 (FY2026 cost base, agency invoices and payroll) | EUR 680k in FY2029 | Cost centre CC-410 actuals | [@fulfilment-director] |
| BEN-002 *(Example)* | Cost per order, Leipzig | EUR 4.60 (FY2026 actual) | EUR 3.95 by FY2029 | Warehouse management reports | [@fulfilment-director] |
| BEN-003 *(Example)* | Mispick rate | 0.45% of order lines (FY2026) | 0.15% by FY2029 | Quality log | [@quality-lead] |
| BEN-004 *(Example)* | Peak agency hours | 61,000 hours in Q4 2026 | Below 15,000 hours in Q4 2028 | Agency invoices | [@hr-director] |

Hand the register to the capex request (section 8 of Capex Request) and schedule the post-investment review: *Example:* 18 months after go-live, with a light check at 6 months.

## 12. Model reference and checks

<!-- Guidance: Reference the model, do not paste it. State the checks performed and who reviewed the model. The FAST Standard (CC BY 4.0) is a useful open reference for model layout. Pitfall: an unreviewed model with hard-coded overrides. -->

| Item | Value |
|---|---|
| Model file and version | [Path / version / date] |
| Model specification | Financial Model Specification (`finance/financial-model-specification`) |
| Structure | [Inputs sheet, calculation sheet, outputs sheet; one row one calculation] |
| Review | [@reviewer], YYYY-MM-DD, findings closed [Yes / No] |

Checks performed (tick when done):

- [ ] Year 0 equals the valuation date; no flows before year 0 except sunk costs, which are excluded.
- [ ] Discount factors recomputed independently for at least three years.
- [ ] NPV recomputed from the table with a calculator; IRR checked by discounting at the IRR (NPV equals zero).
- [ ] Tax depreciation totals equal the depreciable cost; working capital released in full.
- [ ] No interest or loan flows in the cash flows.
- [ ] Nominal flows with a nominal rate (or real with real).
- [ ] Every input traced to the assumptions register; no hard-coded numbers in calculations.
- [ ] Sensitivity and scenario outputs regenerated after the final change.

## 13. Glossary and references

<!-- Guidance: Define each term once, in the sense used in this document, so the capex request and post-investment review use the same meanings. -->

### 13.1 Glossary

| Term | Meaning in this template |
|---|---|
| Baseline | The "do nothing" or "do minimum" option against which increments are measured |
| CAPM | Capital asset pricing model: cost of equity as risk-free rate plus beta times the equity risk premium |
| Discount factor | Present value of one unit received at the end of year t |
| Discounted payback | Years until cumulative present value of cash flows turns positive |
| Hurdle rate | Minimum required return for a project category, here WACC plus a category premium |
| IRR | Discount rate at which NPV equals zero |
| MIRR | Return that compounds inflows at a reinvestment rate and discounts outflows at a finance rate |
| NPV | Sum of discounted incremental cash flows, including the initial investment |
| PI | Present value of future cash flows divided by the initial investment |
| Real option | Right, not obligation, to change the project later (expand, defer, abandon) |
| Switching value | Value of one input at which NPV becomes zero |
| WACC | Weighted average cost of capital: blended after-tax required return of debt and equity holders |

### 13.2 References

| Reference | Version or date checked | Use |
|---|---|---|
| HM Treasury, The Green Book (gov.uk, Open Government Licence v3.0) | 2026 edition, updated 2026-02-05; checked 2026-10-25 | Public-sector appraisal context, option comparison and sensitivity practice, by reference |
| HM Treasury, Green Book discount rate review 2026 (gov.uk) | Conclusions published 2026-06-30; checked 2026-10-25 | Note on public-sector discount rates, by reference |
| OMB Circular A-94, Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs | Version of 1992-10-29, reinstated by OMB Memorandum M-25-23 (2025-04-08), which also kept the 2025 Appendix C rates; annual rates since then by OMB memorandum (2026: M-26-09, as reported; check the latest) | US federal benefit-cost context, by reference |
| German Act on an immediate tax investment programme (Gesetz für ein steuerliches Investitionssofortprogramm), 2025 | As of 2026-10, not re-checked against the Federal Law Gazette; confirm with the tax lead | Corporate income tax rate path from 2028 and declining-balance allowance, used only in the illustrative sensitivity rows |
| FAST Standard, FAST Standard Organisation | Version 02c (CC BY 4.0) | Model layout discipline, by reference |
| IFAC, Project and Investment Appraisal for Sustainable Value Creation | 2013 | Further reading, name only |
| Capex Request (`finance/capex-request`) | This library | Authority to spend |
| Post-Investment Review (`finance/post-investment-review`) | This library | Look-back on this appraisal |
| Business Case (`business/business-case`) | This library | Strategic, commercial and management cases |
| Feasibility Study (`business/feasibility-study`) | This library | Technical, legal, operational and schedule feasibility |
| Valuation Report (`finance/valuation-report`) | This library | Valuation of a whole business rather than one project |

## Standard and licence note

Based on standard corporate finance methods (discounted cash flow, CAPM
and WACC) that are not owned by any standard setter, with public-sector
context from the HM Treasury Green Book (2026 edition, Crown copyright,
Open Government Licence v3.0) and OMB Circular A-94 (US federal work,
public domain), both cited by reference only. The FAST Standard
(version 02c, CC BY 4.0) and the IFAC appraisal publication are cited by
name only; no text from either is reproduced. German tax law is cited
by name as public law. Corvid Commerce Group, the
project and every figure are fictional. This template is original text
written for this collection. Check the current official versions of
cited guidance, including the current public-sector discount rates,
before use. Template licence: MIT.