• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

Congratulations to Jamil from Pakistan and Jeeva from Malaysia - Global Prize winners!
see all ACCA December 2022 Genius Hunt Competition winners >>

Specially for OpenTuition students: 20% off BPP Books for ACCA & CIMA exams – Get your BPP Discount Code >>

Performance measurement

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Performance measurement

  • This topic has 3 replies, 2 voices, and was last updated 7 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • November 29, 2015 at 2:37 pm #286143
    Dick
    Member
    • Topics: 4
    • Replies: 6
    • ☆

    Can you advise where the NPV is coming from please ?
    Cheers

    Example 4

    PQR plc is considering opening a new division to manage a new investment project. Forecast cashflows of the new project are as follows:
    Year 0 1 2 3 4 5
    Forecast net cash flow $m (5.0) 1.4 1.4 1.4 1.4 1.4

    PQR’s cost of capital is 10% pa. Straight line depreciation is used.

    Required: Calculate the project’s net present value and its projected ROI and residual income over its five-year life.

    NPV
    Year 0 1 2 3 4 5
    Forecast net cash flow $m (5.0) 1.4 1.4 1.4 1.4 1.4
    Present value factors at 10% 1.00 0.91 0.83 0.75 0.68 0.62
    Present value (5.0) 1.27 1.16 1.05 0.95 0.87
    NPV = $0.30m

    ROI
    Year 1 2 3 4 5
    1 Opening investment at net book value 5.0 4.0 3.0 2.0 1.0
    2 Forecast net cash flow $m 1.4 1.4 1.4 1.4 1.4
    3 Straight line depreciation (1.0) (1.0) (1.0) (1.0) (1.0)
    4 Profit 0.4 0.4 0.4 0.4 0.4

    ROI (4 ÷ 1 x 100) 8% 10% 13% 20% 40%

    Residual income
    Year 1 2 3 4 5
    Profit (as above) 0.4 0.4 0.4 0.4 0.4
    Imputed capital charge (opening investment x 10%) 0.5 0.4 0.3 0.2 0.1
    Residual income (0.1) 0.0 0.1 0.2 0.3

    Comment: this example demonstrates two points. Firstly, it illustrates the potential conflict between NPV and the two divisional performance measures. This project has a positive NPV and should increase shareholder wealth. However, the poor ROI and residual income figures in the first year could lead managers to reject the project. Secondly, it shows the tendency for both ROI and residual income to improve over time. Despite constant annual cashflows, both measures improve over time as the net book value of assets falls. This could encourage managers to retain outdated assets.

    November 29, 2015 at 2:41 pm #286145
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    I do not know where you found this question, but you cannot be asked to calculate NPV’s in Paper P5 – it is not in the syllabus.

    (Basic NPV’s are examinable in Paper F2, and more complicated in Paper F9 – but not in Paper F5).

    November 29, 2015 at 2:43 pm #286147
    Dick
    Member
    • Topics: 4
    • Replies: 6
    • ☆

    https://www.accaglobal.com/uk/en/student/exam-support-resources/fundamentals-exams-study-resources/f5/technical-articles/performance-measurement.html

    its was here maybe this information is all given ie tables etc populated already, thanks a million anyway.

    November 29, 2015 at 2:56 pm #286152
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    This is very bad of the ACCA.

    It is a very old article that was actually when Paper F5 was called Paper 2.4 and then was a combination of F5 and F9 (and then NPV’s could be examined).
    I know it says that it was updated in August, but they keep doing that – putting a new date when some or all of the article is not relevant!!

    They do not even give discount tables in Paper F5, and again NPV’s cannot be asked.

    (Residual Income and ROI certainly can be asked, but not NPV)

  • Author
    Posts
Viewing 4 posts - 1 through 4 (of 4 total)
  • You must be logged in to reply to this topic.
Log In

Primary Sidebar

ACCA News:

 

ACCA My Exam Performance for non-variant Applied Skills exams is available NOW

NEW! Download the ACCA Pass Guide

FREE Verifiable CPD for ACCA Members

ACCA mock exams and debrief videos

ACCA Options:  “Read the Mind of the Marker” articles

Subscribe to ACCA’s Student Accountant Direct

Donate

If you have benefited from OpenTuition please donate.

ACCA CBE 2023 Exams

Instant Poll * How was your exam, and what was the result?

BT CBE exam was.. | MA CBE exam was..
FA CBE exam was.. | LW CBE exam was..

Specially for OpenTuition students

20% off BPP Books

Get BPP Discount Code

Latest comments

  • ksmigulec on Management of Working Capital  – Introduction – ACCA Financial Management (FM)
  • tmatanga2008@gmail.com on IASB Conceptual Framework – Introduction – ACCA Financial Reporting (FR)
  • John Moffat on Capital asset pricing model (part b) – ACCA Financial Management (FM)
  • John Moffat on Capital asset pricing model (part b) – ACCA Financial Management (FM)
  • palbu on Basic group structures – Impairment – ACCA (SBR) lectures

Copyright © 2023 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in


We use cookies to show you relevant advertising, find out more: Privacy Policy · Cookie Policy