The following data are for the Akron Division of Consolidated Rubber, Inc.: $\begin{array}{lrr}
\text { Sales } & \$ & 750,000 \
\text { Net operating income } & \$ & 45,000 \
\text { Average operating assets } & \$ & 250,000 \
\text { Stockholder's' equity } & \$ & 75,000 \
\text { Residual income } & \$ & 15,000
\end{array}$ For the past year, the minimum required rate of return was:
A) 30%
B) 12%
C) 15%
D) 6%

Question

Quizplus · Accepted Answer

Residual income is calculated as Net Operating Income - (Average Operating Assets * Minimum Required Rate of Return). Given the Residual Income is $15,000 and Net Operating Income is $45,000, we can set up the equation $45,000 - ($250,000 * Minimum Required Rate of Return) = $15,000. Solving for the rate gives us 12%.

The Following Data Are for the Akron Division of Consolidated