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Hi,
Can someone help to find the answer to this question please!A company has a 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 return of investment?Can’t get why they mentioned cost of capital 12% in here?
Please help 🙁
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Hi,
Return of investment – Cost of capital = Residual income
Return of investment – (12% x $200,000) = $36,000
Return of investment – ($24,000) = $36,000
Therefore, $60,000 – ($24,000) = $36,000
Since Return of investment = $60,000 and the total investment (capital employed) = $200,000, the percentage return on the amount invested is:
($60,000 ÷ $200,000) x 100 = 30%Hope this makes sense 🙂
Hello 🙂
Thanks so much for answering my question I have been cheeking since this morning and here is its!
I need to make a note on this formulae:
Return of investment -Cost of Capital =Residual Income
I ‘m studying by BPP Books Material can’t see this Formulae.Highly appreciated your response I can really make sense of all the steps to get the percentage 🙂
Many thanksssssssssss
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