Thorpedo Ltd Reported a Return on Assets of 15% for the Year

Thorpedo Ltd reported a return on assets of 15% for the year ending 31 December. It also acquired a licence for cash by paying $1m at the end of the year ending 31 December. This licence is expected to generate net profits of $0.1m per year and the asset is not amortised. Assuming the results for the next financial year mirror the year ending 31 December and the licence did increase net profit by $0.1m. What is the effect on Thorpedo Ltd's return on assets for this subsequent financial year?

A) A decrease
B) An increase
C) No change
D) Cannot be determined

Correct Answer:

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