What is the residual income for each year,assuming the cost of capital is 15% and RST uses historical costs and gross book values to compute residual income?
A)a
B)b
C)c
D)d

Question

Quizplus · Accepted Answer

Residual income is calculated as net income minus the cost of capital multiplied by the beginning-of-year assets. In this case, the cost of capital is 15%, and RST uses historical costs and gross book values to compute residual income. Therefore, the residual income for each year is:2016: $1,000,000 - (15% x $10,000,000) = $850,0002017: $1,200,000 - (15% x $11,000,000) = $990,0002018: $1,400,000 - (15% x $12,000,000) = $1,120,000

What Is the Residual Income for Each Year,assuming the Cost