Question

EXERCISE 11–2 Residual Income [LO11–2] 11-2 Juniper Design Ltd. of Manchester, England, is a company specializing in providing design services to residential developers. Last year the company had net operating income of $600,000 on sales of $3,000,000. The company’s average operating assets for the year were $2,800,000 and its minimum required rate of return was 18%. Required: Compute the company’s residual income for the year.

Answer 1

residual income=net operating income-(minimum required rate of return*average operating assets)

=600,000-(2,800,000*18%)

which is equal to

=$96,000