Question

If net operating income is $34,000, average operating assets are $204,000, and the minimum required rate of return is 15%, what is the residual income

Answer 1

Answer:

The residual income is $3,400.

Explanation:

Residual Income is calculated as Profit less Return on investment.

Net operating income                                            $34,000

Less Return on Investment ($204,000 × 15%)    ($30,600)

Residual income                                                       $3,400

Conclusion:

The residual income is $3,400.