Brenda and Eddie are considering expanding their restaurant business through purchase of the Parkway Diner, which...

 

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Brenda and Eddie are considering expanding their restaurant business through purchase of the Parkway Diner, which will cost £350,000 to take-over the business and a further £150,000 to refurbish the premises with new equipment. Cash flow projections from the project show the following profits over the next six years. Year 123456 2 5 Net Cash Profits (£) 70,000 70,000 80,000 100,000 100,000 120,000 The equipment will be depreciated to a zero resale value over the same period and, after the sixth year, Brenda and Eddie confidently expect that they could sell the business for £350,000. Required Calculate the ROCE of this investment (using the average investment method) Brenda and Eddie are considering expanding their restaurant business through purchase of the Parkway Diner, which will cost £350,000 to take-over the business and a further £150,000 to refurbish the premises with new equipment. Cash flow projections from the project show the following profits over the next six years. Year 123456 2 5 Net Cash Profits (£) 70,000 70,000 80,000 100,000 100,000 120,000 The equipment will be depreciated to a zero resale value over the same period and, after the sixth year, Brenda and Eddie confidently expect that they could sell the business for £350,000. Required Calculate the ROCE of this investment (using the average investment method)

Answer rating: 100% (QA)

The ROCE for this investment is calculated as follows Average investment 350000 150000 2 250000 ... View the full answer