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hello sir i have 2 doubts in this question,
the first is : the line states that the management fee of $12m will increase by 8% hereafter so why are we increasing operating income by 8%? can u please explain how do we know the operating income or the sales revenue will increase by 8% every year?and the second is while calculating equity for first year why are we not including the reserves of 4500$ (retained earnings) given in the latest p&l extract??
thanks alotThe last sentence of the first paragraph of the question says that ‘its revenues and costs will continue to increase at their current rate of 8%’. If revenues and costs both increase at 8%, then the operating income will increase by 8% as well!
The 4,500 retained earnings is the amount retained last year (it is the latest income statement) and is before the management buy-out.
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