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A new company has non current assets of 460000 which will be depreciated to nil on a straight line basis over 10 years. NET current assets will be $75000, and annual profit will consistently be $30000. ROI IS measured as return on net assets
Calculate ROI in years 2 and 6
Answer
Year 2 – 6.8%
Y6 – 11.6%SIR could you explain how we get this answer.
The depreciation is 460,000/10 = 46,000 per year.
After 2 years, the balance sheet value of the non-current assets will be 460,000 – (2 x 46,000) = 368,000.
The total value of the assets will be 368,000 + 75,000 = 443,000.The profit is 30,000.
So the ROI = 30,000/443.000 = 6.8%
(Same workings for year 6)
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