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Abacus LLP are another accounting firm that currently has non-current asset value of 2m and capital employed of 5m and earns an annual profit after
- Abacus LLP are another accounting firm that currently has non-current asset value of 2m and capital employed of 5m and earns an annual profit after depreciation of 2.15m. The managing partner is considering investing 1.5m. As is normal policy for all assets, they will have a ten-year life with no residual value and earn an annual profit after depreciation of 130,000. The cost of capital is 8%.
REQUIRED:
Calculate the following and comment on the results.
- The return on Abacus LLP investment, before and after the new investment
- The Abacus LLP residual income before and after the new investment.
- Evaluate the impact of the firms depreciation policy on the profit and investment strategies. [10 Marks]
TOTAL 25 MARKS
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People Centric Skills Interpersonal And Communication Skills For Financial Professionals
Authors: Danny M. Goldberg
2nd Edition
1119669308, 978-1119669302
