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Residual income question in practice exam

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › Residual income question in practice exam

  • This topic has 3 replies, 2 voices, and was last updated 9 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • May 22, 2016 at 12:27 am #316290
    aes1212
    Member
    • Topics: 5
    • Replies: 2
    • ☆

    Hi

    In the F2 practice exam on this website there is a question on residual income which I cannot get the correct answer to using the calculation I believe is correct.. the question is ‘an investment division currently has net assets of $500,000 and is earning profits of $70,000 per annum. The divisional manager is considering a new investment which will cost $20,000 and will generate additional profits of $2,200 per annum. The company has a cost of finance of 10%. What is the RI for the division with and without the new investment?’
    Using the calculation per the study books I would do for
    without investment – 70,000 – (500,000*10%)= 20,000
    and for the new investment 72,200 – (520,000*10%) = 20,200.

    However the answer in the exam says it is 30,000 and 29,800 respectively.

    Please help!

    May 22, 2016 at 6:27 am #316308
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    Your answer is correct.

    There is a mistake in our answer which I thought had already been corrected – I will check again.

    Sorry 🙁

    May 22, 2016 at 1:14 pm #316391
    aes1212
    Member
    • Topics: 5
    • Replies: 2
    • ☆

    Thanks for coming back so quickly. At least I won’t forget this calculation for the exam! 🙂

    May 22, 2016 at 4:33 pm #316434
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    You are welcome (and that is true about not forgetting 🙂 )

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