A company\'s current net operating income is $20,200 and its average operating a

Question

A company's current net operating income is $20,200 and its average operating assets are $148,000. The company's required rate of return is 21%. A new project being considered would require an investment of $18,400 and would generate annual net operating income of $4,700. What is the residual income of the new project?

A. 26%

B. $836

C. 13.10%

D. $(2,064)

A company's current net operating income is $20,200 and its average operating assets are $148,000. The company's required rate of return is 21%. A new project being considered would require an investment of $18,400 and would generate annual net operating income of $4,700. What is the residual income of the new project?

A. 26%

B. $836

C. 13.10%

D. $(2,064)

Explanation / Answer

Residual Income of new project Net operating Income-(Minimum Required Return*Average Operating assets or investment in case of new project) 4700-(.21*18400) 836 Ans b $836

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