Evaluating the investment using return on capital employed, Financial Accounting

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Evaluating the investment using return on capital employed:

Annual depreciation charge = 1500000/5 = $300000

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Average investment = 1500000/2 = $750000

Average annual accounting profit = 1359529/5 = $271906

Return on capital employed = 100 × (271906/ 750000) = 36%

Ever since the return on capital employed is greater than the hurdle rate of 20% the investment is financially acceptable.

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