Answer:
Izzy Division's Residual Income is $193,000
Explanation:
given data
Sales = $4,700,000
Operating income = $700,000
Total assets = $3,900,000
Current liabilities = $300,000
target rate of return = 13%
average cost of capital = 12%
to find out
Izzy Division's Residual Income
solution
first we find here Minimum required income that is express as
Minimum required income = Total assets × Target rate of return ................1
Minimum required income = $ 3,900,000 × 13%
Minimum required income = $ 507,000
and
now we find residual income that is express as
Residual income = Operating income - Minimum required income ..........2
Residual income = $700000 - $507000
Residual income = $193,000
Izzy Division's Residual Income is $193,000
