Question

he Top Hat Division of​ Blandon's Fine Menswear had the following results last year​ (in thousands). Sales $ 4 comma 600 comma 000 Operating income $ 690 comma 000 Total assets $ 2 comma 000 comma 000 Current liabilities $ 210 comma 000 ​Management's target rate of return is 14​% and the weighted average cost of capital is 10​%. What is the Top Hat​ Division's Residual Income​ (RI)?

Answer 1

Answer:

$410,000

Explanation:

Residual income = operating income - (rate of return*average operating assets)

= $690,000-(14%*$2,000,000)

=$690,000-$280,000

=$410,000

Therefore the Top Hat​ Division's Residual Income​ (RI) would be $410,000