Q A company undertakes a project that involves purchasing machinery at a cost of $65,000.
The machinery is used on the project for 4 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
it is 6250/65000 x 100 which is 10%
Surely you have to add initial investment plus scrap value and divide by 2?
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ROCE (Average Investment Method) ARR
3y ago#1If the question had asked for the average rate of return you would be correct. However it asked for the initial return and so we use the initial investment.
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