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Q: A company undertakes a project that involves purchasing machinery at a cost of $65,000. The machinery is used on the project for four years, generating operating cash inflows of $20,000 per year. It is sold at the end of the project for $10,000. Taxation is charged at a rate of 30%. Calculate the initial return on capital employed (ROCE) for the project, to the nearest whole percentage
Sir, I don’t get why we don’t take the $10,000 machinery sale value as a return from the project? and only use the $20,000 per year less depreciation?
The question asks for the initial return on capital employed which is the accounting profit as a % of the capital invested.
The sale proceeds not affect the accounting profit – only the depreciation.
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