Congratulations to Jamil from Pakistan and Jeeva from Malaysia - Global Prize winners!
see all ACCA December 2022 Genius Hunt Competition winners >>

Specially for OpenTuition students: 20% off BPP Books for ACCA & CIMA exams – Get your BPP Discount Code >>

Return on Investment (ROI)

This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.

Viewing 2 posts - 1 through 2 (of 2 total)

Author
Posts
September 5, 2021 at 1:37 pm #634463
nzrn89
Participant
- Topics: 37
- Replies: 15
EF Plc has 3 divisions – P, Q and R – whose performance is assessed on return on investment (ROI). The ROI for the divisions for the coming year is expected to be 24%, 28% and 23% respectively. Two new proposals are now being considered:
(i) P is considering investing $75,000 in order to increase profit by $21,600 each year
(ii) Q is considering selling a machine, forecast to earn a profit of $2,500 in the coming year, for its carrying value (NBV) of $7,000.
Which of the following divisions will reject the proposal under consideration because of its effect on ROI?
A. P
B. Q
C. P and Q
D. Neither P and Q
The answer is Q. Why will we reject Q?
September 5, 2021 at 7:55 pm #634497
John Moffat
Keymaster
- Topics: 57
- Replies: 51559
The return on the asset being sold is 2,500/7,000 = 36%
By selling it, the return of that division will be reduced to even less than the current 23%.
The should be wanting to increase their ROE and not reduce it.
Author
Posts

Viewing 2 posts - 1 through 2 (of 2 total)

You must be logged in to reply to this topic.