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RI calculation

This topic has 3 replies, 2 voices, and was last updated 6 years ago by John Moffat.

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May 6, 2019 at 4:29 pm #515108
sipho
Member
- Topics: 2
- Replies: 6
Box Co has an operating profit of $20,000, and operating assets of $95,000. The cost of capital is 12%. There is a proposed investment of $10,000 which will increase the operating profit by $1,400
What is the RI with and without the proposed investment?
Answer:
. Before Investment. After Investment
$ Divisional profit . 20,000. 21,400
Depreciation. (850)
Imputed interest (12% of $95,000). (11,400)
Imputed interest (12% of $105,000). (12,600)
Residual income. 8,600. 7,950
My question is how and why did they calculate the depreciation(850) after the investment?
May 7, 2019 at 2:51 pm #515225
John Moffat
Keymaster
- Topics: 57
- Replies: 54831
I have no idea 🙂
Are you sure that you copied out the whole question? If it is a question in the BPP Revision Kit or a past exam question, then say which one so that I can check for myself.
May 8, 2019 at 6:03 am #515277
sipho
Member
- Topics: 2
- Replies: 6
its in the BPP Revision Kit, question 276 (Box Co)
May 8, 2019 at 9:16 am #515297
John Moffat
Keymaster
- Topics: 57
- Replies: 54831
I am currently on my way home from vacation and I do not have the BPP Revision Kit with me.
Please ask your question again tomorrow – I will be home then and so will be able to check the question and answer you 🙂
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