Asked by Mitchell Allen on May 16, 2024
Verified
The following data has been provided for a company's most recent year of operations: The residual income for the year was closest to:
A) $20,000
B) $3,000
C) $5,000
D) $15,000
Residual Income
The income that exceeds the minimum required return on an investment or business segment.
- Calculate and interpret residual income for a given set of financial data.
Verified Answer
SS
Seema SinghMay 16, 2024
Final Answer :
C
Explanation :
ROI = Net operating income ÷ Average operating assets
0.20 = Net operating income ÷ $100,000
Net operating income = 0.20 × $100,000 = $20,000
Residual income = Net operating income - (Average operating assets × Minimum required rate of return)
= $20,000 - ($100,000 × 0.15)= $20,000 - $15,000 = $5,000
0.20 = Net operating income ÷ $100,000
Net operating income = 0.20 × $100,000 = $20,000
Residual income = Net operating income - (Average operating assets × Minimum required rate of return)
= $20,000 - ($100,000 × 0.15)= $20,000 - $15,000 = $5,000
Learning Objectives
- Calculate and interpret residual income for a given set of financial data.