30 is going over my head 30) Assume the Air Conditioning division of the General

Question

30 is going over my head

30) Assume the Air Conditioning division of the General Appliance Corporation 30) had the following results last year (in thousands). Management's target rate of return is 15% and the weighted average cost of capital is 10%. Its effective tax rate is 35%. Sales Operating income Total assets Current liabilities $10,000,000 2,000,000 2,500000 820,000 What is the division's Residual Income (RI)? A) $1,625,000 B) $500,000 C) $1,750,000 D)1,132,364 31) Ringo Corporation had the following results last year (in thousands). 31) Management's target rate of return is 15% and the weighted average cost of capital is 10%. Its effective tax rate is 35%. Sales Operating income Total assets Current liabilities $20,000,000 4,000,000 8,000,000 4,820,000 What is the division's Return on Investment (RO)? D) 500.00% B) 50.00% C) 20.00% A)32.80% 32) 32) Camden Corpora tion has operating income of $87,000, a sales margin of 15%, and capital turnover of 2.5. The return on investment (RO1) for Camden a he closest to D) 38%.

Explanation / Answer

30) A. $1,625,000

Residual Income = Net operating income - (Invested assets * Minimum required rate of return)

Residual Income = $2,000,000 - ($2,500,000 * 15%)

Residual Income = $1,625,000

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