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GuDViN [60]
3 years ago
6

Izzy Division of Marine Boats Corporation had the following results last year (in thousands). Sales $4,700,000​ Operating income

$700,000​ Total assets $3,900,000​ Current liabilities $300,000​ Management's target rate of return is 13% and the weighted average cost of capital is 12%. What is the Izzy Division's Residual Income (RI)?
Business
1 answer:
ASHA 777 [7]3 years ago
4 0

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

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Net residual Income is the value of the firm. All the preferred and required / agreed return on any the funding availed is deducted from the net earning after profit to make the value for the firm. The income purely associated to the firm is considered as the value of the firm.

Earning Before Interest and tax = Net Sales - Operating costs = $80 million - $52 million = $28 million

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Value created for the firm = Net operating profit after tax - Return on investor-supplied capital = $16.8 - $8.625 = $8.175 million = $8.18 million

MVA is the net of market capitalization and stockholders equity of the firm. It is the difference of market value and book value of equity of a firm.

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Roman buys seed packets for the school garden. One packet of radish seeds costs $1. 75. One packet of tomato seeds costs $2. 50.
bezimeni [28]

Roman may buy 23 tomato and 9 radish,  for the school garden.

 

<h3><u>Calculation:</u></h3>

Let (r) represent the cost of one packet of radish seeds, and

Let (t) represent the cost of one packet of tomato seeds.

Amount spent by roman = $62.75

It denotes that;

\ 1.75r +2.5t = 62.75.......equn. 1

Roman bought 32 packets of seeds and one packet of radish seeds costs = $ 1.75.

One packet of tomato seeds costs =  $ 2.50.

It denotes that,

\ r+t=32.....equn.2

Substitute t=9 , and r= 23, we have

In eq. 1

\ = 1.75\times9 + 2.5\times23 = 62.75\\ = 15.75+57.5 \neq  62.75 \\ = 62.75 = 62.75

In eq.2

\ =32=23+9 = 32\\

Here, both the equations are satisfied, therefore, option [C] is correct.

Learn more about equation:

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How can money in a savings account grow
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