Question

Juniper Design Ltd. of Manchester, England, is a company specializing in providing design services to residential developers. Last year, the company had net operating income of $440,000 on sales of $1,500,000. The company’s average operating assets for the year were $1,700,000 and its minimum required rate of return was 10%.
Required:
Compute the company’s residual income for the year.

Answer 1

$270000 is residual income

Explanation:

The following table has been made in order to find out the residual income of the company.

Particulars                                                   Amt

Net Operating Income                                   440000

Less: Required Return (1700000 multiply 10%) 170000

Residual Income                                         270000

From the net operating income of the company, the required rate of return is to be deducted and result will be the residual income of the company.

Thus, from the above calculation, residual income as per the given data and after calculation is = $270000