Average BV of Capital






Return on Capital






The book value of capital each year includes the investment in fixed assets and the noncash working capital. If we average the year-specific returns on capital, the average return on capital is 44.82% but this number is pushed up by the extremely high return in year 4. A better estimate of the return on capital is obtained by dividing the average aftertax operating income over the four years by the average capital invested over the four years, which yields a return on capital of 28.91%. Since this exceeds the cost of capital that we estimated in illustration 5.2 for this project of 22.76%, the return on capital approach would suggest that this is a good project.

In table 5.8, we estimate operating income, book value of capital and return on capital for Disney's theme park investment in Thailand. The operating income estimates are from exhibit 5.1:

Table 5.8: Return on Capital for Disney Theme Park Investment
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