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marishachu [46]
3 years ago
8

Assume the Hiking Shoes division of the All About Shoes Corporation had the following results last year (in thousands). Manageme

nt's target rate of return is 20% and the weighted average cost of capital is 30%. Its effective tax rate is 40%.-Sales $5,000,000-Operating income 1,250,000-Total assets 1,000,000-Current liabilities 750,000What is the division's Residual Income (RI)?A) $1,050,000B) $420,000C) $2,000,000D) $950,000
Business
1 answer:
NNADVOKAT [17]3 years ago
5 0

Answer:

A) $1,050,000

Explanation:

Residual income

= Net operating income - (Total assets*Target rate of return)

= 1,250,000 - (20%*1,000,000)

= $1,050,000

Therefore, The division's Residual Income is $1,050,000.

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