If net operating income is $43,000, average operating assets are $215,000, and t

Question

If net operating income is $43,000, average operating assets are $215,000, and the minimum required rate of return is 13%, what is the residual income? Multiple Choice $15.050 $12,900 $27.950 $58.050 Cabell Products is a division of a major corporation. Last year the division had total sales of $25,060.000, net operating income of $1.503.600, and average operating assets of $7.518,000. The company's minimum required rate of return is 19%. The division's return on investment (RO) is closest to: Multiple Choice 6,0% 300% 20.0%

Explanation / Answer

1) Calculate residual income :

Residual income = Net operating income-Minimum operating income

                         = 43000-(215000*13%)

Residual income = 15050

so answer is a) $15050

2) ROI = Net operating income*100/Average operating assets

          = 1503600*100/7518000

ROI = 20%

so answer is c) 20%

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