Asked by Jessica Ventura on Jul 24, 2024
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Cabell Products is a division of a major corporation. Last year the division had total sales of $25,320,000, net operating income of $1,924,320, and average operating assets of $6,000,000. The company's minimum required rate of return is 10%.The division's residual income is closest to:
A) $1,324,320
B) $2,524,320
C) $1,924,320
D) $(607,680)
Residual Income
The income that remains after deducting all required costs of capital from the operating income, used as a performance measure.
Minimum Required Rate
is the lowest return or yield that an investor is willing to accept on an investment, considering the risk involved.
Average Operating Assets
This term refers to the average value of the assets used in the operations of a business over a specific period, usually calculated to assess performance.
- Comprehend the principle of residual income and the methodology used in its calculation.
- Assess the efficacy of divisional operations through financial indicators like net operating income, sales figures, and mean operating assets.
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Learning Objectives
- Comprehend the principle of residual income and the methodology used in its calculation.
- Assess the efficacy of divisional operations through financial indicators like net operating income, sales figures, and mean operating assets.
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