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Wish is a division of XY company. Following data related to division Wish. Capital employed (Equity + Bank loan): OMR 4,000,000 Annual operating profit: OMR
Wish is a division of XY company. Following data related to division Wish.
Capital employed (Equity + Bank loan): OMR 4,000,000
Annual operating profit: OMR 1,000,000
Cost of capital: 12% per Annum.
XY company is considering the following proposal:
Invest further OMR 150,000 in non- current assets to earn annual operating profit of OMR 30,000
REQUIRED:
Questions:
A. Calculate the current return on investment and residual income for division Wish.
B. Consider the proposal and show how the return on investment and residual income would change if the proposal were adopted.
C. Comment on the result of residual income for division Wish
D. Discuss how does the application of IFRS enhance financial reporting of the company.
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