Question

Cabell Products is a division of a major corporation. Last year the division had total sales of $25,060,000, net operating income of $1,503,600, and average operating assets of $7,518,000. The company's minimum required rate of return is 19%. The division's residual income is closest to:

Answer 1

Answer:

The division's residual income is $75,180

Explanation:

Residual income : The residual income is that income which is left over after paying taxes and expenses

The formula to compute residual income

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

= $1,503,600 - ($7,518,000 × 19%)

= $1,503,600 - $1,428,420

= $75,180

The total sale is irrelevant while computing the residual income. Thus, it is not considered in computation part.

Hence, The division's residual income is $75,180