The following data pertain to Dakota Division’s most recent year of operations. Income $ 10,500,000 Sales...
The following data pertain to Dakota Division’s most recent year of operations.
| Income | $ | 10,500,000 | |
| Sales revenue | 130,000,000 | ||
| Average invested capital | 51,000,000 | ||
Assume that the company’s minimum desired rate of return on invested capital is 10 percent.
Required:
Compute Dakota Division’s residual income for the year.
Homework Answers
| Residual income is the income in excess of minimum desired return | |||||||
| Residual income | = | Income earned | - | (Average invested capital*Minimum desired rate of return) | |||
| = | $ 1,05,00,000 | - | (51000000*10%) | ||||
| = | $ 1,05,00,000 | - | $ 51,00,000 | ||||
| = | $ 54,00,000 | ||||||
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