- This topic has 3 replies, 2 voices, and was last updated 8 years ago by
.
- Posts
On the page 74, BPP practice and revision Kit F5 has the following question:
Box Co 20 mins
The following scenario relates to questions 275 – 279.
Box Co has an operating profit of $20,000, and operating assets of $95,000. The cost of capital is 12%. There is a proposed investment of $10,000 which will increase the operating profit by $1,400.276.What is the RI with and without the proposed investment?
Without investment: ? $
With investment: ? $The answer in the book is as follow:
276 The correct answers are: Before investment: $8,600, After investment $7,950.
Before Investment After Investment
$ $
Divisional profit 20,000 21,400
Depreciation (850)
Imputed interest (12% of $95,000) (11,400)
Imputed interest (12% of $105,000) (12,600)
Residual income 8,600 7,950
I think that the information given in the question is not adequate. There is no information about the depreciation after investment. I wonder how can derive the depreciation of $850 to arrive at the residual income of 7,950 after investment. If there is no depreciation, the answer should be 8800 for residual income after investment!
Maybe it is a typo of this book!
Please help me to explain this!
Thank you!From what you have typed it does seem that there is information missing from the question.
I am away from home until Tuesday and I don’t have the Revision Kit with me, so I cannot check. Please copy and paste and ask this question again on Tuesday and then I will be able to answer you for certain 🙂
Here I had copied and pasted what was exactly in the book. There are some other typos in revision Kit that BPP publishing house should take into considerations.
- The topic ‘Residual income after investment’ is closed to new replies.