Asked by Benny Csillag on Jun 18, 2024
Verified
Fabbri Wares is a division of a major corporation.The following data are for the latest year of operations: 
Required:
a.What is the division's return on investment (ROI)?
b.What is the division's residual income?
Residual Income
Residual income is the profit remaining after deducting all required costs of capital from operating income.
- Quantify the return on investment (ROI) and understand its effects.
- Conduct calculations and studies on residual income.
Verified Answer
RL
Rhonda LittlesJun 18, 2024
Final Answer :
a.ROI = Net operating income ÷ Average operating assets = $1,163,880 ÷ $3,000,000 = 38.8%
b.Residual income = Net operating income - Minimum required rate of return × Average operating assets = $1,163,880 - (14% × $3,000,000)= $743,880
b.Residual income = Net operating income - Minimum required rate of return × Average operating assets = $1,163,880 - (14% × $3,000,000)= $743,880
Learning Objectives
- Quantify the return on investment (ROI) and understand its effects.
- Conduct calculations and studies on residual income.