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February 11, 2020 at 7:43 am
My question is that as in the 2nd example for residual income the profit was 16000 but if it was 15000 then with and without new investment the residual income will be the same 7000 then will the manager accepts the project as it doesnt increases the for him but its achiving the company’s target
John Moffat says
February 11, 2020 at 8:24 am
The manager would be indifferent as to whether or not to accept (and so would the company – the fact that their target is 15% means that they want projects giving more than 15%, they don’t want projects giving less than 15%, and they are indifferent to those that give 15% 🙂 )
February 9, 2020 at 10:10 am
Hi I’m hoping someone can help. Question 272 from BPP question book (section a type question on ROI) the capital employed is taken at mid year. In the solution for the profit they deduct 0.2 million and I can’t figure out at all where/why this is deducted. Would be grateful for any help, Many thanks
February 9, 2020 at 10:12 am
Should have included above the 0.2 million is for depreciation but I can’t figure out why. Thanks,
February 9, 2020 at 4:45 pm
Please repost this in forum (tutor or student help) and not as a lecture comment. Also need the full question to able to tell you why depreciation was deducted. (Although, generally, depreciation expense is deducted in the income statement to get profit. -Even though it is not a cash flow)
December 16, 2019 at 3:49 am
April 10, 2019 at 4:10 pm
Hi sir Thank you for the lecture I have got one question. When it was roi manager rejected the new investment because the 2nd roi was smaller than 1st roi. However when we came to RI manager accepted 2nd RI even though it was smaller than 1st RI. Can you please explain this situation?
April 11, 2019 at 6:28 am
The RI with the new investment was not smaller – it was higher than the RI without the new investment.
October 30, 2018 at 8:12 pm
This is really helpful.
Thankyou Sir !
October 31, 2018 at 6:59 am
Thank you for your comment 🙂
October 8, 2018 at 3:02 pm
Hi Sir, I wanted to ask:
In the second example, the new investment gives a lower return than the current ROI, isn’t the manager acting favorably from the viewpoint of the company even though he is making the decisions based on whether he will be rewarded or not?
my point is, even though the manager is making decisions based on whats good for him, in the second example, why would not going for a lower ROI be not goal congruent?
October 8, 2018 at 5:58 pm
Although the company does want the investment (because it gives more than the target return), if the manager is being measured on ROI then he will reject the project because the ROI on which he is measured will be lower.
August 29, 2018 at 11:24 pm
Great lecture John
August 30, 2018 at 10:18 am
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