Service

Chat Now

Example Calculation of the return on capital employed Carbon plc is considering the purchase of a new machine and has found two which meet its specification Each machine has an expected life of

Example Calculation of the return on capital employed Carbon plc is considering the purchase of a new machine and has found two which meet its specification Each machine has an expected life of

Example

Calculation of the return on capital employed

Carbon plc is considering the purchase of a new machine and has found two which meet its specification. Each machine has an expected life of five years. Machine 1 would generate annual cash flows (receipts less payments) of £210 000 and would cost £570 000. Its scrap value at the end of five years would be £70 000. Machine 2 would generate annual cash flows of £510 000 and would cost £1 616 000. The scrap value of this machine at the end of five years would be £301 000. Carbon plc uses the straight-line method of depreciation and has a target return on capital employed of 20 per cent. Calculate the return on capital employed for both Machine 1 and Machine 2 on an average investment basis and state which machine you would recommend, giving reasons.

Tripti 08-Jul-2020

Answer (Solved)

question Get solution