Teresa’s Taco Co. had the following results during the most recent year: Sales $500,000; Residual income...
Teresa’s Taco Co. had the following results during the most recent year: Sales $500,000; Residual income $5,000; investment turnover 2.5; and a required rate of return of 15%. The operating (pretax) income was a. $30,500 b. $192,500 c. $35,000 d. $16,250.
Homework Answers
| Option c $35000 is correct. |
| Computation of Average Operating assets:- | |||||||
| a. | Sales | $ 500,000 | |||||
| b. | Investment turnover | 2.5 | |||||
| Average Operating assets (a/b ) | $ 200,000 | ||||||
| Computation of Net Operating Income for the year:- | |||||||
| Residual income | = | Net Operating Income | - | Required Rate of return on operating assets | × | Average Operating assets | |
| $5,000 | = | Net Operating Income | - | 15% | × | $ 200,000 | |
| $5,000 | = | Net Operating Income | - | $ 30,000 | |||
| Net Operating Income | = | $ 5,000 | + | $ 30,000 | |||
| Net Operating Income | = | $ 35,000 | |||||
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