Performance Management

This topic has 3 replies, 3 voices, and was last updated 1 month ago by John Moffat.

Viewing 3 reply threads

Author

Posts
- June 6, 2020 at 9:31 pm #573007
  
  ketki15
  Participant
  
  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
  
  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
  
  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
  
  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 3 reply threads

You must be logged in to reply to this topic.