Asked by Emily Gellis on Jun 05, 2024
Verified
All other things equal, which of the following would increase a division's residual income?
A) Increase in expenses.
B) Decrease in average operating assets.
C) Increase in minimum required return.
D) Decrease in net operating income.
Residual Income
The amount of income that an individual or company has after subtracting all costs and expenses, including the cost of capital.
Net Operating Income
The income generated from a company's everyday business operations, indicating the profitability from core operations before interest and taxes.
- Investigate the impact of financial investment decisions on a company's economic performance measures.
Verified Answer
ZK
Zybrea KnightJun 05, 2024
Final Answer :
B
Explanation :
Residual income is calculated by subtracting the minimum required return from the division's net operating income, divided by the average operating assets. Therefore, if the average operating assets decrease, residual income will increase. The other options would decrease residual income.
Learning Objectives
- Investigate the impact of financial investment decisions on a company's economic performance measures.