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Hi, can you help me with this, please?
In the last year a division’s controllable return on investment was 25% and its controllable profit was $80,000. The cost of finance appropriate to the division was 18% per annum. What was the division’s controllable residual income in the last year?
Thank you.
Since the ROI is 25%, it must mean that the cost of the investment is 80,000 / 25% which is 320,000.
Now it should be easy, the RI = profit less notional interest on the investment at the cost of finance.
Thank you very much..
I think I need to review this class because Im a bit lost with the concept!
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