Project Appraisal

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July 5, 2014 at 2:17 pm #178205
juwairiamahmood
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An Investment division earns return on investment of 15% and a residual income of $200000.The cost of capital is 18%. A new project gives a ROCE of 16%. If the new project is accepted what will happen to the division’s ROI and RI ?
July 5, 2014 at 5:02 pm #178213
John Moffat
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The ROI will increase because the project return of 16% is more than the current return of 15%.
The RI will fall, because the return from the investment is less that the cost of capital.
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