Return on Capital

The return on capital on a project measures the returns earned by the firm on it is total investment in the project. Consequently, it is a return to all claimholders in the firm on their collective investment in a project. Defined generally,

Earnings before interest and taxes

Return on Capital (Pre-tax) =-

Average Book Value of Total Investment in Project

Earnings before interest and taxes (1- tax rate)

Return on Capital (After-tax) =-

Average Book Value of Total Investment in Project

To illustrate, consider a 1-year project, with an initial investment of $ 1 million, and earnings before interest and taxes of $300,000. Assume that the project has a salvage value at the end of the year of $800,000, and that the tax rate is 40%. In terms of a time line, the project has the following parameters:

Earnings before interest & taxes = $ 300,000

Salvage Value = $ 800,000

Average Book Value of Assets = $(1,000,000+$800,000)/2 = $ 900,000

The pre-tax and after-tax returns on capital can be estimated as follows:

Retirement Planning For The Golden Years

Retirement Planning For The Golden Years

If mutual funds seem boring to you, there are other higher risk investment opportunities in the form of stocks. I seriously recommend studying the market carefully and completely before making the leap into stock trading but this can be quite the short-term quick profit rush that you are looking for if you am willing to risk your retirement investment for the sake of increasing your net worth. If you do choose to invest in the stock market please take the time to learn the proper procedures, the risks, and the process before diving in. If you have a financial planner and you definitely should then he or she may prove to be an exceptional resource when it comes to the practice of 'playing' the stock market.

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