The following data has been provided for a company’s most recent year of operations: Return on...

The following data has been provided for a company’s most recent year of operations:


Return on investment		30	%
Average operating assets	$	75,000
Minimum required rate of return		17	%

The residual income for the year was closest to:

$9,750
$20,000
$15,750
$21,500

Solutions

Expert Solution

Answer: A - $9,750

Residual Income = Actual Net Income - Minimum required income

Actual Net Income = Average operating assets * Return on investment

= $75,000 * 30%

= $22,500

Minimum required income = Average operating assets * Minimum required rate of return

= $75,000 * 17%

= $12,750

Residual Income = Actual Net Income - Minimum required income

= $22,500 - $12,750

= $9,750

ekkarill92 answered 1 year ago

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