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Cool & Trendy are considering expanding their internet cafe business by buying a shack in jamaica which will cost £175,000 to buy the business and a further £75,000 to refurbish.
They expect to sit back and chill while the following cash comes in:
Year Net Cash Profits (£)
1 35,000
2 35,000
3 40,000
4 50,000
5 50,000
6 60,000
The equipment will be depreciated to a zero resale value over the same period and, after the sixth year, the cool brothers are going to move onto the next big thing and sell this for a lovely £175,000.
Required
Calculate the ROCE of this investment (using the average investment method) and the payback periodPlease do not simply set me test questions and expect an answer. You must have an answer in the same book in which you found the question, so ask about whatever it is in the answer that you are not clear about – then I will explain.
I assume that you have watched my free lectures in which the calculations of ROCE and payback period are both explained.
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