Answer:
Rate of Interest = Operating Income/Average Invested Asset
Residual Income = (Operating Income- Average Invested Assets)*Minimum Required rate of return
a. ROI before investing = $220,000/$2,005,000
ROI before investing = 0.109725686
ROI before investing = 10.97%
b. Residual Income = $220,000 - $2,005,000*5%
Residual Income = $220,000 - $100,250
Residual Income = $119,750
c. ROI after investing = ($220,000+$37,000) / ($2,005,000+$450,000)
ROI after investing = $257,000/$2,455,000
ROI after investing = 0.10468432
ROI after investing = 10.47%
d. Residual Income after investing = $220,000 + $37,000
Residual Income after investing = $257,000
