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Hello Sir, hope you are doing well.
in the question below the answer,scheme is dividing depreciation by 4 years.
isn’t it supposed to be by 5 years since the machine is used for 5 years?
Q A company undertakes a project that involves purchasing machinery at a cost of $65,000.
The machinery is used on the project for five years, generating operating cash inflows of
$20,000 per year. It is sold at the end of the project for $10,000. Taxation is charged at a
rate of 30%.
Calculate the initial return on capital employed (ROCE) for the project, to the nearest
whole percentage
ANSWER
Initial ROCE = average annual profits before interest and tax / initial capital × 100
Profits = operating cash flows before taxation – depreciation
Depreciation over project life = $65,000 – $10,000 = $55,000
Depreciation per annum = $55,000 / 4 = $13,750
Average annual profits = $20,000 – $13,750 = $6,250 per annum
Initial ROCE = $6,250 / $65,000 × 100 = 9.6% or 10% to nearest whole percentaGE
Assuming that you have copied the question correctly, then yes – it should be divided by 5.
yes the question is correct
maybe there is an error in the answer.
thank you sir
You are welcome 🙂