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Hello John,
Thanks for the help you give to us please help me with this qn in June 2015 MCQ 19 i would appreciate the explanation behind the calculation of the expected ROI. At start of the year a division has non current asset of $4m makes no additions or disposals during the year.Depreciation is charged at a rate of 10% pa on noncurrent assets held at the end of the year. Working capital is $0.5m at the start of the year although this ids expected to increase by 20% by the end of the year. The budgeted profit of the division after depreciation is $1.2m.
what is the expected ROI of the division for the year based on average capital employed? Please help thanksAt the start of the year, the capital is $4 + $0.5M = $4.5M
At the end of the year is will be: ($4M – (10%x$4M)) because of depreciation,plus ($0.5M + (20% x $0.5M). So a total of $4.2M
So average capital employed = (4.5 + 4.2) / 2 = 4.35M
Therefore ROI = 1.2 / 4.35 = 27.59%
Thanks ever so much John I am sure to pass F5 this time surely fingers crossed if nothing goes wrong in exam hall thanks ever so much God bless u I have learnt a lot from your lectures that’s why I have this confidence to pass this time around coz u surely explain everything clearly am proud to be part of Open tuition?
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