BPP Black Friday sale! (28 Nov-1 Dec)

40% discount on all BPP books specially for OpenTuition students!
Get it here >>

Performance Management

This topic has 3 replies, 3 voices, and was last updated 5 years ago by John Moffat.

Viewing 4 posts - 1 through 4 (of 4 total)

Author
Posts
June 6, 2020 at 9:31 pm #573007
ketki15
Member
- Topics: 60
- Replies: 15
I have a question,
Is residual income directly related to the NPV and does it make sure that managers will select project with positive NPV?
June 7, 2020 at 10:19 am #573030
John Moffat
Keymaster
- Topics: 57
- Replies: 54795
No – it I s not directly related to the NPV.
NPV is based on future expected cash flows, whereas the RI is calculated on profits and when making a decision managers are estimating the short-term effect.
Have you watched my free lectures on this? The lectures are a complete free course for Paper MA and cover everything needed to be able to pass the exam well.
August 1, 2020 at 6:50 am #578882
jeeyun
Participant
- Topics: 0
- Replies: 1
hi sir
but RI uses the cost of capital, so it is more directly related to NPV than ROI isn’t it?
August 1, 2020 at 10:14 am #578904
John Moffat
Keymaster
- Topics: 57
- Replies: 54795
RI does not automatically use the cost of capital. The notional interest rate is whatever rate the company wants to achieve from the division. They might choose it to be their cost of capital but it does not have to be.
Author
Posts

Viewing 4 posts - 1 through 4 (of 4 total)

You must be logged in to reply to this topic.