Question

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 $450,000 on sales of $2,000,000. The company’s average operating assets for the year were $2,200,000 and its minimum required rate of return was 12%. Required: Compute the company’s residual income for the year.

Answer 1

Residual income

= Net operating income - Required return

= 450,000 - (2,200,000 * 12%)

= 450,000 - 264,000

= 186,000