Hey Guys, here's a basic softball question for you guys to break up all the muck that is IT/COSO/Cost accounting
SkBound Airlines provided the following information about its two operating divisions:
Passenger Cargo
Operating profit $40,000 $50,000
Investment $250,000 $500,000
External borrowing rate 6% 8%
Measuring performance using return on investment (ROI), which division performed better?
A. The Cargo division, with an ROI of 10%.
B. The Cargo division, with an ROI of 18%.
C. The Passenger division, with an ROI of 22%.
D. The Passenger division, with an ROI of 16%.
I know the answer is D, my concern for this question is the wording. Typically, unless I've been mistaken in the past, ROI = Net Income / Total Investment. In this question we are only given Operating Profit and the external borrowing rate. Lo and behold, the borrowing rate has nothing to do with this problem. I was able to deduce that. However, normally, operating profit assumes that interest and taxes have not been deducted.
Does anyone have any insight on whether the exam questions are worded this way? One MCQ problem I calculate ROI based on net income/profit, the next MCQ I have to calculate it based on “operating profit”. What gives?
"FACT": The odds of consecutively passing all four sections of the CPA exam on the first try: 7%.
Me: Hold my beer...
FAR (April 2017): 75+
BEC (May 2017): 75+
AUD (July 2017): 75+
REG (September 2017): 75+
Roger + Ninja Audio/MCQ/Notes (BEC & REG)