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February 17, 2017 at 8:51 am
Q2 – I worked out that the RI is higher for Y so therefore this should be the answer, but the comment says that this is wrong and the answer is X. Could you please explain, thank you
February 17, 2017 at 8:58 am
Ignore my question, I have just figured out what I did wrong!!!
John Moffat says
February 17, 2017 at 4:39 pm
No problem – I am pleased that you have figured it out 🙂
July 30, 2016 at 4:55 pm
please can you explain why return on investment % is used against capital investment to generate profit instead of sales in question 5?
July 31, 2016 at 8:37 am
Because the definition of ROI is profit as a % of the investment.
Have you watched the free lectures on divisional performance measurement?
May 23, 2016 at 2:23 pm
Please help..how do i convert cashflows into profits if the only infomation i have been given is the net present value for the years.?
May 23, 2016 at 5:46 pm
I have no idea which question you are referring to!!
Have you watched my free lectures before attempting this test?
January 28, 2016 at 1:20 pm
Please can you explain Q2, I have the same answer as the comment above and am unsure as to why the answer says Division Y?
January 28, 2016 at 1:21 pm
RI is higher for Division Y hence why it is accepted, have I answered my own question?
January 28, 2016 at 5:21 pm
Yes – you have answered your own question 🙂
(I do suggest that you watch the free lectures on this – our free lectures are a complete course and cover everything needed to be able to pass the exam well 🙂 )
January 11, 2016 at 12:50 pm
dont we have to compare residual income with the current return on investment decision?, and if we do have to then even division x wouldn’t choose to invest as it is lower than current
January 11, 2016 at 1:44 pm
No you don’t. The question asks what the decisions would be if they were based on residual income.
November 20, 2015 at 4:53 pm
That is correct (and the test should have shown it as having been correct when you submitted your answer 🙂 )
November 20, 2015 at 3:24 pm
Could anybody help me with solving this question? I don’t understand what to do with Cost of capital…
November 20, 2015 at 4:06 pm
Which question (there are 5 of them) ? 🙂
November 20, 2015 at 4:07 pm
The second one. About Residual Income. Thank you.
November 20, 2015 at 4:41 pm
I solved it as follows:
1) $34.56m * 30% = $10.368m – Profit
2) $78.24m * 12% = $9.388’8m – notional interest at target return on amount invested
3) $10.368m – $9.388’8m = $ 0.979m – residual income
– ROI = 13.25% less than current by task
1) $21.12m * 24% = $5.068’8m – Profit
2) $53.28m * 12% = $6.393’6m – notional interest at target return on amount invested
3) $5.068’8m – $6.393’6m = $ (1.324’8m) – residual income
– ROI = 9.51% less than current by task
So only Division X is profitable…
Is it Correct?
November 26, 2016 at 12:10 pm
No need to assess your decision based on ROI because the question says If the residual income used for as the basis for investment decision, therefore, ROI is a distractor factor
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