Question

Avocado Company has an operating income of $108,000 on revenues of $1,054,000. Average invested assets are $505,000 and Avocado Company has an 8% cost of capital. What is the residual income

Answer 1

Answer:

$67,960

Explanation:

Residual income = Operating income - (Average invested assets * Cost of capital)

Residual income = $108,000 - ($500,500 * 8%)

Residual income = $108,000 - $40,040

Residual income = $67,960

Thus, the residual income is $67,960