eBook Video Calculator Residual Income The Avila Division of Maldonado Company h
ID: 2596018 • Letter: E
Question
eBook Video Calculator Residual Income The Avila Division of Maldonado Company had operating income last year of $112,800 and average operating assets of $710,000. Maldonado's minimum acceptable rate of return is 10%. Required: 1. Calculate the residual income for the Avila Division. Round your answer to the nearest dollar Residual income 2. was the ROI for the Avila Division greater than, less than, or equal to 10%? Greater than 10% Feedbacik average operating assets) l income operating income-(minimum rate of return Review the "How to Calculate Residual Income-example in your text. PreviousNext Check My WorkExplanation / Answer
The Avila Division of Maldonaldo Company had operating income last year of $112,800 and average operating assets of $710,000. Maldonaldo minimum acceptable rate of return is 10%
1) Calculate the residual income for the Avila Division
Solution: $41,800
Working:
Return on investment = Net operating income / Average operating assets
= 112,800/ 710,000 = 0.1589 = 15.89%
Residual income = Net operating income - (Average operating assets × Minimum required rate of return)
= 112,800 - (710,000 * 10%)
= 41,800
2) Was the ROI for the Avila Division greater than, less than, or equal to 10%?
Solution: Greater than 10%
Working:
Return on investment = Net operating income / Average operating assets
= 112,800/ 710,000 = 0.1589 = 15.89%
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