Calculate the ROCE from the following figures.

Cost of machine £ 160,000 Expected life 5 years Estimated scrap value £ 20,000 Estimated profits before depreciation Year 1 £ 40,000 Year 2 £ 80,000 Year 3 £ 60,000 Year 4 £ 30,000 Year 5 £ 10,000 Solution Note : Average profit before depreciation = £ 220,000/5 = £ 44,000 Total depreciation = £ 160,000 - £ 20,000 = £ 140,000 Average depreciation = £ 140,000/5 = £ 28,000 Average annual profit after depreciation = £ 44,000 - £ 28,000 = £ 16,000

 ROCE =

£16,000

* 100% = 10 per cent

£160,000

[Answer: 10 per cent]