Asked by Bui Huyen Trang (K13_HN) on Jul 24, 2024
Verified
If net operating income is $70,000, average operating assets are $250,000, and the minimum required rate of return is 16%, what is the residual income?
A) $11,200
B) $40,000
C) $110,000
D) $30,000
Operating Assets
Assets used by a business in its operational activities to generate revenue, excluding investments and non-operating assets.
Residual Income
The income that exceeds the minimum required return on investment or capital; often used in performance measurement and evaluation.
- Comprehend and apply the concept of residual income for performance evaluation.
Verified Answer
PC
Paige CaldwellJul 25, 2024
Final Answer :
D
Explanation :
Residual income is calculated as net operating income minus (minimum required rate of return multiplied by average operating assets):
Residual income = $70,000 - (0.16 x $250,000) = $30,000
Therefore, the correct answer is D) $30,000.
Residual income = $70,000 - (0.16 x $250,000) = $30,000
Therefore, the correct answer is D) $30,000.
Learning Objectives
- Comprehend and apply the concept of residual income for performance evaluation.
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