Determining Missing Items in Rate of Return and Residual Income Computations Dat
ID: 2582574 • Letter: D
Question
Determining Missing Items in Rate of Return and Residual Income Computations
Data for Schmidt Company are presented in the following table of rates of return on investment and residual incomes:
Determine the missing values, identified by the letters above. For all amounts, round to the nearest whole number.
Invested Assets
Income from Operations
Rate of Return on Investment Minimum Rate of Return Minimum Acceptable Income from Operations
Residual Income $950,000 $209,000 (a) 12% (b) (c) $620,000 (d) (e) (f) $68,200 $31,000 $350,000 (g) 14% (h) $38,500 (i) $260,000 $52,000 (j) 12% (k) (l)
Explanation / Answer
Invested Assets
Income from operations
Rate of return on investments
Minimum rate of return
Minimum acceptable income from operations
Residual income
950000
209000
209000/950000 *100 = 22%
12%
950000*12% = 114000
209000 – 114000 = 95000
620000
68200+31000 = 99200
99200/620000 *100 = 16%
68200/620000 *100 = 11%
68200
31000
350000
350000*14% = 49000
14%
38500/350000 *100 = 11%
38500
49000 – 38500 = 10500
260000
52000
52000/260000 *100 = 20%
12%
260000*12% = 31200
52000 – 31200 =20800
Missing values:
a.
22%
b.
$114000
c.
$95000
d.
$99200
e.
16%
f.
11%
g.
$49000
h.
11%
i.
$10500
j.
20%
k.
$31200
l.
$20800
Invested Assets
Income from operations
Rate of return on investments
Minimum rate of return
Minimum acceptable income from operations
Residual income
950000
209000
209000/950000 *100 = 22%
12%
950000*12% = 114000
209000 – 114000 = 95000
620000
68200+31000 = 99200
99200/620000 *100 = 16%
68200/620000 *100 = 11%
68200
31000
350000
350000*14% = 49000
14%
38500/350000 *100 = 11%
38500
49000 – 38500 = 10500
260000
52000
52000/260000 *100 = 20%
12%
260000*12% = 31200
52000 – 31200 =20800
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