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