All other things equal, which of the following would increase a division's residual income?
A) Increase in expenses.
B) Decrease in average operating assets.
C) Increase in minimum required return.
D) Decrease in net operating income.

Question

Quizplus · Accepted Answer

Residual income is calculated as net operating income minus a minimum required return multiplied by average operating assets. Therefore, decreasing average operating assets would increase residual income. Increasing expenses or decreasing net operating income would decrease residual income. Increasing the minimum required return could go either way, depending on whether the new minimum required return is lower or higher than the current return.

All Other Things Equal, Which of the Following Would Increase