QUESTION ONE Shaft Mining Ltd is a mining contractor with ten autonomous divisions operating in various copper mines in Copperbelt and North-Western provinces of Zambia. The cost of capital for the group is 12% per annum and is currently earning 15% on its capital employed. In the ROCE calculation, return is equated with net profit and capital employed figure at the beginning of the financial year. All fixed assets are depreciated on a straight-line basis. Investments in new projects include incremental working capital. Projects sold or withdrawn from operation are treated as consisting of fixed assets only. If no new expenditure transactions take place the position of four of the divisions would be: Division Capital employed as 1st January 2019 Net profit Budgeted for 2019 sales $000 $000 $000 Kitwe 3200 800 8000 Solwezi 4500 1500 14000 Chingola 2800 840 7000 Mufulira 2000 260 2000 The following transactions were proposed: Kitwe Division Investment of $1,000,000 to yield sales of $1,500,000 per annum and net profit of $200,000 per annum. Solwezi Division Sale for $750, 000 of a projected that is budgeted to yield a net profit of $150,000 in 2019. The original equipment cost $6,000,000 seven years ago with an expected life of eight years. Chingola Division (a) Sale of product line at book value. The original equipment cost $600,000 two years ago with an expected life of three year. This line is budgeted to yield a net of $200,000 in 2019; combined with (b) Replacement of (a) above by investing $1,000,000 in a new product to yield $300,000 per annum. Mufulira Division Investment of $800,000 in a project to yield sales of $360,000 per annum and a net profit of $112,000 per annum. (Note. In connection with each of the above transactions, you are to assume that the sale and/or investment would be completed by 1 January 2019 so as to be included in the relevant ROCE calculations for the year 2019. Ignore taxation and inflation considerations and assume that actual results are as budgeted.) Required A. On the assumption that each transaction goes ahead: (i) Calculate the new ROCE for each division for the year ending 31 December 2019. (7 Marks)