Answer:
1) $2,500,000
2) $425,000
Explanation:
1)
The Average Operating Assets is given using the formula
= (Beginning Operating Assets + Ending Operating Assets) ÷ 2
on substituting the values from the question, we get
⇒ Average Operating Assets = (2,700,000 + 2,300,000) ÷ 2
⇒ Average Operating Assets = 5,000,000 ÷ 2
⇒ Average Operating Assets = $2,500,000
2)
The Residual Income is calculated as:
= Operating Income - (Minimum Rate of Return × Average Operating Assets)
on substituting the values from the question, we get
⇒ Residual Income = $800,000 – (15% × $2,500,000)
⇒ Residual Income = $800,000 - $375,000
⇒ Residual Income = $425,000
