The Southern Division of Smith Company had average operating assets totaling $670,000 last year. If the...
The Southern Division of Smith Company had average operating assets totaling $670,000 last year. If the minimum required rate of return is 12%, and if last year’s net operating income at Northern was $77,500, then the residual income for Northern last year was:
a. $2,900.
b. ($2,900).
c. $9,300.
d. ($9,300).
Homework Answers
| Average operating assets | 670000 | |||
| Min required rate of return | 12% | |||
| Target returns | 80400 | |||
| Actual net income | 77500 | |||
| Less: Target returns | 80400 | |||
| Residual income | -2900 | |||
| Answer is b. (2900) | ||||
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