Asked by Carly Rosati on Jul 30, 2024
Verified
Residual income is the net operating income that an investment centre earns above the
minimum required return on the investment in operating assets.
Residual Income
The income that remains after subtracting all the costs of capital from the net operating income.
Net Operating Income
Earnings before interest and taxes (EBIT), a measure of a company's profitability from operations.
Minimum Required Return
The minimum return that investors expect to earn from their investment.
- Understand the theory and computation of residual income.
Verified Answer
TF
Tyler FieldsJul 31, 2024
Final Answer :
True
Explanation :
Residual income is indeed defined as the net operating income earned above the minimum required return on investment in operating assets, which aligns with the provided statement.
Learning Objectives
- Understand the theory and computation of residual income.
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