Asked by Mahammed Bindawood on Jul 20, 2024
Verified
If net operating income is $70,000, average operating assets are $250,000, and the minimum required rate of return is 16%, what is the residual income?
A) $11,200
B) $40,000
C) $110,000
D) $30,000
Residual Income
The amount of income that an individual or company has after all personal debts and expenses, including the cost of capital, have been paid.
Required Rate Of Return
The minimum annual percentage earned by an investment that will induce individuals or companies to put money into a particular security or project.
Net Operating Income
A measure of a company's profitability from its regular business operations, excluding expenses and revenues from financing and investing activities.
- Calculate residual income and elucidate its significance within a given financial context.
Verified Answer
SZ
Salsabila ZahirJul 21, 2024
Final Answer :
D
Explanation :
Residual income = Net operating income - (minimum required rate of return x Average operating assets)
Residual income = $70,000 - (0.16 x $250,000)
Residual income = $70,000 - $40,000
Residual income = $30,000
Therefore, the correct answer is (D) $30,000.
Residual income = $70,000 - (0.16 x $250,000)
Residual income = $70,000 - $40,000
Residual income = $30,000
Therefore, the correct answer is (D) $30,000.
Explanation : 
Learning Objectives
- Calculate residual income and elucidate its significance within a given financial context.