Use the following information to compute residual income: $$\begin{array} { | l | r | }
\hline \text { Sales } & \$ 320,000 \
\hline \text { Operating inc ome } & \$ 60,000 \
\hline \text { Average current assets } & \$ 250,000 \
\hline \text { Cost of capital } & 12 \% \
\hline \text { Return on inw estment } & 15 \% \
\hline
\end{array}$$
A) $12,000.
B) $22,500.
C) $30,000.
D) $48,000.

Question

Use the following information to compute residual income: $$\begin{array} { | l | r | } 
\hline \text { Sales } & \$ 320,000 \
\hline \text { Operating inc ome } & \$ 60,000 \
\hline \text { Average current assets } & \$ 250,000 \
\hline \text { Cost of capital } & 12 \% \
\hline \text { Return on inw estment } & 15 \% \
\hline
\end{array}$$
A) $12,000.
B) $22,500.
C) $30,000.
D) $48,000.

Quizplus · Accepted Answer

Residual income is calculated as Operating Income minus the product of Average Current Assets and Cost of Capital. Here, it is $60,000 - ($250,000 * 12%) = $60,000 - $30,000 = $30,000.

Use the Following Information to Compute Residual Income A) $12,000