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Hi,
I am a little unclear with question 11 on pilot paper F2 Dec 2011.
The question is:
A company has a capital employed of $200,000. It has a cost of capital of 12% per year. Its residual income is $36000.
What is the company’s return on investment?
Answer is (A) which in this answer gain is added to cost, and the formula as I understand subtracts the cost. So I am little confused as to why this is added?
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residual income = profit before tax – notional income
= profit before tax – (cost of capital x capital employed)
36000 = PBIT – (12% X 200000)
PBIT = 60000Return on investment / ROCE = (PBIT / Capital employed) x 100%
= (60000 / 200000) x 100%
= 30%another question I would like you to have a look at if possible:
Using an interest rate of 10% per year the net present value (NPV) of a project has been correctly calculated as $50. If the interest rate is increased by 1% the NPV of the project falls by $20.
What is the internal rate of return (IRR) of the project?
Thanks
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IRR = NPV = O
10% = $50
11% = $30
12% = $10
13% = -$10when the IRR=0, it is between 12% to 13%, thus the answer will be 12.5%
You can also use interpolation method to calculate too.Hi Dude
Hope you OK and really appreciate your help on the previous question.I Have another question and need some clarification on it. The question is as follows:
A company manufactures and sells a single product. In two consecutive months the following levels of production and sales (in units) occurred:
Month 1 Month 2
Sales 3,800 4,400
Production 3,900 4,200The opening inventory for Month 1 was 400 units. Profits or losses have been calculated for each month using both absorption and marginal costing principles.
Which of the following combination of profits and losses for the two months is consistent with the above data?
Absorption Costing profit/loss Marginal Costing profit/loss
Month 1 Month2 Month 1 Month 2A) 200 4400 (400) 3200
🙂 (400) 4400 200 3200
C) 200 3200 (400) 4400
D) (400) 3200 200 4400
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