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sir when calculating RI, if we have been given all 3 figures, cost of borrowing, cost of capital(or hurdle rate) , target ROI then which figure should we use to calculate notional interest on capital?
sir in sports co. Sept/ dec. 2017 both cost of capital(12%) and target ROI (18%) has been given still when calculating RI, cost of capital has been used instead of target ROI . its utterly amusing to me how arbitrarily different rates are used!
Could you help me understand sir why here cost of capital was used instead of target ROI? is it an exception or something?
The question says that the target ROI for each of the divisions is 18%. It does not say that it is the target for the company overall.
Also, the fact that there is no other reason for note (3) rather suggests to use the cost of capital.
It is a trivial point anyway given that the notional interest rate used only carried 1 mark of out the 20.
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