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John Moffat.
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Shi2004
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A project has estimated Cf of $3000 per year with initial investment of $9000. Depreciation is straightline with no residual value and project has 6yr life. The target ROI is 28% and payback 2.5year. Roce is based on average investment.
Under which appraisal method will the project be accepted??
Do we take depreciation when calculating the average profit? And for the payback how do we know its and even CF and instead of doing cumulative we just calculate by 9000/3000??
John Moffat
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The profit is always calculated after depreciation.
For the payback period, the question says that the cash flow is $3,000 per year. Therefore it takes 3 years to get back a total of $9,000.
Shi2004
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Okay sir thank you. Helps a lot!!
John Moffat
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You are welcome.
Shi2004
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