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CIMA Exam CIMAPRO19-P02-1 Topic 5 Question 78 Discussion

Actual exam question for CIMA's CIMAPRO19-P02-1 exam
Question #: 78
Topic #: 5
[All CIMAPRO19-P02-1 Questions]

Division A is an investment centre with assets of $7.3 million. The following is an extract from the annual budget for division A:

The cost of capital is 14%.

Calculate the residual income for division A.

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Suggested Answer: A, C, D

by Geoffrey at Dec 08, 2023, 01:58 PM

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Elbert
17 hours ago
Aha! I've got it. The target profit is $1,022,000, and the actual profit is $664,000. So the residual income is the difference, which is $358,000. Easy peasy, lemon squeezy!
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Ula
2 days ago
Hmm, I'm not sure about this one. The cost of capital is 14%, but the actual profit is only $664,000. That seems a bit low. Maybe I should double-check my calculations.
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Buck
8 days ago
Okay, let's think this through step-by-step. The asset value is $7.3 million, and the cost of capital is 14%. Plugging that into the formula, I get $1,022,000 as the target profit. Subtracting the actual profit of $664,000, the residual income is $358,000. So the correct answer is C.
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Vincenza
10 days ago
But the cost of capital is 14%, so I think the correct answer is C) $358,000.
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Jonelle
11 days ago
I disagree, I believe the answer is D) $2,008,000.
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Vincenza
14 days ago
I think the answer is B) $1,727,800.
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