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Dec 2007 Q2 Alpha a) RI

Uursulaanna4510y ago
Hi I would like to ask about the way RI was calculated in the answear to this question When calculating RI we need to take return less depreciation, is that correct? But if we do that then the value of capital employed (equipment in this case) falls by the amount of depreciation charged for the year? in the solution in Year 1 cost of capital is calculated using full 45m amount ? should it not be 30m, becasue 15m was depreciated? Thank you
kengarrettkengarrettTutor10y ago#1
RI is usually calculated using the capital at the start of the year. (EVA is always calculated using opening capital).
Uursulaanna4510y ago#2
ok that makes sense now, would the same be with ROCE, capital employed is the figure from the start of the year? and for both in general: ROCE and RI, return/profit would be usually before tax or should it be before interest and tax? Thank you
kengarrettkengarrettTutor10y ago#3
ROI and RI: profit before interest and tax. Note that EVA is after tax and before interest (NOPAT)
Uursulaanna4510y ago#4
That's all clear Thank you
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