Skip to content
ACCA exam results — Are you ready?Chat about it >>

Ask the Tutor ACCA MA

Residual Income and Return of Investment

MMandip11y ago
Hi, I need some help with the below question which was in the June 2012 exam paper. “An investment centre earns a ROI of 18% and a residual income (RI) of £300,000. The cost of capital is 15%. A new project offers a return on capital employed 17%. If the new project were adopted, what would happen to the investment centre’s return on investment and RI? Return on Investment: Increase or Decrease? Residual Income: Increase or Decrease?” The answer is ROI Decreases and RI increases but i am having trouble understanding how. It is my knowledge that Return of Capital Employed is the same as Return of Investment so 17%-18% = -1% so ROI decreases. But having great difficulty understanding how RI increases. Thanks
John MoffatJohn MoffatTutor11y ago#1
You have asked this in two places - please do not do that. I have answered your question in the other forum.
Sign in to reply to this topic.