Hi everyone,
I have a query regarding a question in an old kit( I do have one for the current period also ;)
Box Co
Box co has an operating profit of $20,000 and operating assets of $95,000. The cost of capital is 12%. There is a proposed investment of $10,00 which will increase the operating profit by $1400.
What is the Ri with and without the investment?
The RI with the investment is $8600, which I got right.
The second part of the solution was $7950 due to depreciation of 850 being deducted.
Div Profit $21400
Deprec (850)
Imputed interest 12% of $105,000
I am completely confused as to how they obtained they established the depreciation; please could someone explain.
Thank you!
Sarah