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Residual Income

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Residual Income

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • September 12, 2016 at 12:05 pm #340057
    ashique252475
    Member
    • Topics: 3
    • Replies: 4
    • ☆

    An investment division currently has net assets of $ 500,000 and is earning profit of $ 70,000 per annum! The divisional manager is considering an investment of $ 20,000 and will generate additional profits of $2200 per annum. The company has a cost of finance of 10%.
    What is the R.I with and without the new investment??

    I got this question at the mock tests on opentuitions! My answer is:
    Net profit 70000
    (-notional interest) (50000)
    =20,000 before the new investment

    Net profit (70000+2200)= 72200
    (-notional interest) (500,000+20000)10% =(52000)
    =20200 after the investments
    But both the anwers do not match with the solution given! The given answer is -30000 and -29800 respectively! Please explain where I did it incorrectly!

    September 12, 2016 at 3:23 pm #340074
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54664
    • ☆☆☆☆☆

    Your answer is correct and there is a mistake in the mock exam.

    I do apologise – I thought I had corrected it, but obviously not 🙁

    I will correct it immediately.

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    Posts
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