Question

The following data are for the Akron Division of Consolidated Rubber, Incorporated: Sales $ 870,000 Net operating income $ 69,000 Average operating assets $ 370,000 Stockholders' equity $ 87,000 Residual income $ 27,000 For the past year, the minimum required rate of return was:

Answer 1

Residual income = Net operating income—(Average operating assets × minimum required rate of return)

$27,000 = $69,000—($370,000 × minimum required rate of return)

After solving this, the minimum required rate of return is 11.35

What is operating income?

Operating income is the income used in the business in day to day activities from which the business runs and the daily expenses are done. Operating income is the essential part as it helps in smooth running of business.

Thus, it is 11.35.

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