The following information relates to last year's operations at the Bread Division of Rison Bakery, Inc.: What was the Bread Division's minimum required rate of return last year?
A)12%
B)4%
C)15%
D)20%

Question

The following information relates to last year's operations at the Bread Division of Rison Bakery, Inc.:  What was the Bread Division's minimum required rate of return last year?
A)12% 
B)4% 
C)15% 
D)20%

Quizplus · Accepted Answer

Residual income = Net operating income - (Average operating assets × Minimum required rate of return)
$12, 000 = $60, 000 - ($400, 000 × Minimum required rate of return)
$400, 000 × Minimum required rate of return = $60, 000 - $12, 000
$400, 000 × Minimum required rate of return = $48, 000
Minimum required rate of return = $48, 000 ÷ $400, 000 = 12%

The Following Information Relates to Last Year's Operations at the Bread