Question

What is the residual income(loss) if a company has sales of $205,000, cost of goods sold of $115,000, operating expenses of $40,000, average invested assets of $915,000, and hurdle rate of 12.75 percent?

Answer 1

Answer:

Following are the solution to this question:

Explanation:

value                                                                                   Amount

Sale                                                                                 $\ 205,000$                                  

The less cost of product sol                                                $\ 115,000$

The less operate expenses                                                $\ 40,000$

Earning                         $= \ 205,000- \ 115,000 - \ 40,000 = \ 50,000$

Average funds invested                                                 $\ 915,000$

Investment return                                     $= \frac{ \ 50,000}{\ 915,000} \times 100 = 5.464 \%$

Required Income                             $= \ 915,000\times 12.75\% = \ 116,662.5$

Residual Income (Loss) $= \ 50,000 - \ 116,662.5 = (\ 66,662.5)$