Answer:
$180,000
Explanation:
The question is to calculate Mr. Tobin's residual income
The formula for residual income is = Operating income - (The desired rate of return x the Operating Assets)
Operating Income = $480,000
Desired rate of return = 7.5%
Operating Assets= $4,000,000
The Residual Income = $480,000 - (0.075 x $4,000,000)
= $480,000 - $300,000
= $180,000
Note that Residual income is defined or described as an income that is generated in excess above one's minimum rate of return and is usually adopted to measure the internal corporate performance of an organisation. In this case William Tobin will use the Residual income to measure the internal performance of the investment center of Climax Corporation he is in charge of
