ACCA PM · Chapter 14 · Question 5 of 10
A division's assets are measured at net book value. If profits remain constant and no new assets are acquired, what will happen to the division's ROI over time?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) It will increase as the assets depreciate
Explanation
As assets depreciate, their net book value and therefore capital employed fall. With constant profit, ROI rises over time even though performance has not improved. This can discourage managers from replacing old assets, since new investment would reduce ROI.
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