Residual income can be calculated as:
A)Operating income − (hurdle rate × average invested assets)
B)Segment margin − (hurdle rate × average invested assets)
C)Operating income − (ROI × average invested assets)
D)Operating income − investment turnover

Question

Quizplus · Accepted Answer

Residual income is calculated as operating income minus the cost of funds (hurdle rate) multiplied by average invested assets. Option A correctly reflects this formula. Option B uses segment margin, which is not an appropriate measure for calculating residual income. Option C uses ROI, which is not similar to residual income. Option D subtracts investment turnover from operating income, which is not the correct formula for calculating residual income.

Residual Income Can Be Calculated As