Excel Division reported a residual income of $200,000 for the year just ended.The division had $8,000,000 of invested capital and $1,000,000 of income.On the basis of this information,the imputed interest rate was:
A)2.5%.
B)10.0%.
C)12.5%.
D)20.0%.
E)some other figurE.

Question

Quizplus · Accepted Answer

Residual income is calculated as actual income minus the product of the invested capital and the imputed interest rate. Given the residual income of $200,000, actual income of $1,000,000, and invested capital of $8,000,000, the equation is: $1,000,000 - ($8,000,000 * r) = $200,000. Solving for r gives an imputed interest rate of 10.0%.

Excel Division Reported a Residual Income of $200,000 for the Year