Question

information for dude division is as follows: net earnings for division $20,000 asset base for division $50,000 target rate of return 16% operating income margin 12% weighted average cost of capital 8% what is dude's residual income?

Answer 1

The dude's residual income is the $12000. The information was the given by the $20,000 asset, $50,000 target rate, 12% weighted, and the average cost of capital 8%.

What is cost of capital?

The cost of capital is indeed the minimal rate of return or revenue required by a corporation before it may generate value. The potential cost of putting money into a given business endeavor or project is linked to the cost of capital.

The given the amount are:

• $20,000 asset
• $50,000 target rate
• return 16%
• operating income margin 12%
• cost of capital 8%
• residual income = ?

Net earnings for division                        20000

Less: Minimum required return                8000 (50000 × 16%)

Residual income                                     12000

As a result, the dude's residual income is the $12000.

Learn more about on cost of capital, here:

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