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A company has capital employed of $200,000. It has a cost of capital of 12% per year. Its residual income is $36,000.
What is the company’s return on investment?
Ans.
%capital interest = 12%* 200,000=24,000.
RI=company’s return-capital interest
36,000=company’s return-24000
company’s return=36,000+24,000=60,000ROI=RI+(capital X interest)/Capital employed.
ROI= 36000 + (12%x $200 000) divided by $200 000
ROI= 30%
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