The book value of capital includes the investment in fixed assets (capital expenditures), net of depreciation, and the investment in working capital that year and the return on capital each year is computed based upon the average book value of capital invested during the year. The average after-tax return on capital over the 10-year period is 4.21%. Here, the return on capital is lower than the cost of capital that we estimated in illustration 5.2 to be 10.66% and this suggests that Disney should not make this investment.

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