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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › ROCE (Average Investment Method) ARR
Q A company undertakes a project that involves purchasing machinery at a cost of $65,000.
The machinery is used on the project for 4 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
it is 6250/65000 x 100 which is 10%
Surely you have to add initial investment plus scrap value and divide by 2?
If the question had asked for the average rate of return you would be correct. However it asked for the initial return and so we use the initial investment.