Formulas

Question 1

ROCE (2)

Answer 1

(Average capital investment/initial capital costs) x 100

OR

(Average capital investment/(initial cost + scrap value/2)) x 100

Question 2

Annual depreciation

Answer 2

(Initial value - scrap value)/n

Question 3

Payback period

Answer 3

Initial investment/annual cash flow

Question 4

Compound interest

Answer 4

F = P(1+r)n

Question 5

IRR

Answer 5

L + (NL/(NL - NH) x (H-L)

Question 6

IRR of annuity

Answer 6

(annual cash flow / initial investment) x 100

Question 7

IRR of perpetuity

Answer 7

initial investment / annual cash flow

Question 8

Inflation

Answer 8

(1 + i) = (1 + r)(1 + h)

i = money rate
r = real rate
h = inflation