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ROI and RI

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › ROI and RI

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • February 21, 2017 at 9:28 am #373460
    kitse
    Member
    • Topics: 13
    • Replies: 8
    • ☆

    Divisional performannce management:

    division X ROI:
    without project=12%
    with project=12.3%
    divisional RI=-$60 000

    project in isolation:
    ROI =15%
    RI=-$3 000

    company’s required ROI=18%

    Question: assess the project using both ROI and RI
    MY Answer:
    ROI:
    since with the project, the ROI of the division will increase, the project should be undertaken. this is still true even when the higher ROI will be lower than the required 18%. this is akin to making a bad situation better

    vs The text book answer:
    the division will want to accept this project which should be rejected as it fails to hit the company target of 18%.

    RI: no. the investment would not add to the RI, so the DIVISION AND COMPANY does not benefit from undertaking this project

    Please clarify.

    February 21, 2017 at 1:45 pm #373500
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54681
    • ☆☆☆☆☆

    What is typed for RI is correct because the RI of the project is negative.

    With regard to the ROI, usually what you have written is correct and they would accept the project. However the wording of the question is very poor and it is “required ROI” wording which means the book you are using could claim their answer to be correct.
    You will not have this wording problem with real exam questions.

  • Author
    Posts
Viewing 2 posts - 1 through 2 (of 2 total)
  • The topic ‘ROI and RI’ is closed to new replies.

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