The Box Manufacturing Division of the Allied Paper Company reported the following results from the past...
The Box Manufacturing Division of the Allied Paper Company reported the following results from the past year. Shareholders require a return of 6%. Management calculated a weighted−average cost of capital (WACC) of 3%. Allied's corporate tax rate is 35%.
Sales $900,000
Operating income 135,000
Total assets 1,500,000
Current liabilities 600,000
What is the division's Residual Income (RI)? A. $81,000 B. $47,250 C. $45,000 D. $90,000
Homework Answers
Answer:- Option (c) $45000
Residual Income = Operating Income - Required Return × Average Operating Assets
Residual Income = $135,000 - (6% × $1,500,000)
Residual Income = $135,000 - $90000
Residual Income = $45000
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