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Dear John,
My question relates to the below example from Kaplan’s exam kit:
Net value of assets and liabilities 4500m
Revenue 3500m
cost of sales 1800m
Local administration 250m
IT costs 50m
Distribution 80m
Central administration 30m
interest charges 90m
net profit 1200m
ignore taxationIf the cost of capital is 12% what is the division’s RI?
I understand that we need to use controllable profit so I added the interest to the net profit to calculate RI but according to solution the controllable profit is= 1200+90+30+50.
Could you please explain it why?
Thanks very much.Kind regards,
KatalinI’ve been thinking since I sent this question in and the example states that the head office controls finance, HR and IT expenditure but all other decisions are devolved to the local centres.
So if there are expenses which are not controlled by the division adds to the division’s net profit so that will be equal to the division’s controllable profit?
I am on the right track?Yes – you are on the right track and you have answered your own question 🙂
Thaaaanks 🙂 🙂
More stupid questions are on the way though 🙂Kind regards,
Katalin
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