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Hello Sir,
I want to ask how in in part d the net profit while calculting the residual income for the company has come $132,000
i dont get it
thanksThe extra contribution is 8.5% x 600,000 = 51,000 per month, which is 51,000 x 12 = 612,000 per year.
The extra depreciation per year is (21200000-200000)/4 = 480,000 per year.
So….the extra profit is 612,000 – 480,000 = 132,000 per year.
Sir same question, requirement d, i do not understand ” This decision will be in the best interests of the company as a whole, since the RI of the investment alone is
actually negative ($132k – $212k = $(80k))” shoud it not be good for the company as a whole if it was positive ?The decision (in the previous sentence) is that the investment will NOT be undertaken, and this is in the best interests of the company (because the RI is negative).
If the RI had been positive, then the investment would have been undertaken and this would be in the best interests of the company.
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