Question

Cabell Products is a division of a major corporation. Last year the division had total sales of $10,400,000, net operating income of $540,800, and average operating assets of $2,392,000. The company's minimum required rate of return is 16%. The division's residual income is closest to:

Answer 1

Answer:

$158,080

Explanation:

The division's residual income is calculated as;

= Net operating income - ( Average operating assets × Minimum required rate of return)

= $540,800 - ( $2,392,000 × 16% )

= $540,800 - $382,720

= $158,080