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A fixed capital investment of P10,000,000 is required for a proposed manufacturing plant and an estimated...

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Accounting

A fixed capital investment of P10,000,000 is required for aproposed manufacturing plant and an estimated working capital ofP2,000,000. Annual depreciation is estimated to be 10% of the fixedcapital investment. Determine the rate of return on the totalinvestment if the annual profit is P2,500,000.  Determinethe payout period if the annual profit is P2,500,000

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3.9 Ratings (542 Votes)

Fixed investment                                                    10,000,000
Depreciation 10%
Depreciation per annum                                                      1,000,000
Annual profit                                                      2,500,000
Add: depreciation                                                      1,000,000
Cash profit per annum                                                      3,500,000
Return on invetment Annual profit
(fixed capital + working capital)
25,00,000/ (10,00,00,00 + 2,000,000)
20.83%
Payback period Total capital employed
Annual cash flow profit
10,000,000 + 2,000,000)/ 35,00,000/
                                                                3.43 Years

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