Fairpoint Products provided the following selected information about its consumer products division for the current year: Based on this information, the division's investment amount was:
A) $500,000.
B) $1,250,000.
C) $750,000.
D) $2,000,000.

Question

Fairpoint Products provided the following selected information about its consumer products division for the current year:  Based on this information, the division's investment amount was:
A) $500,000. 
B) $1,250,000. 
C) $750,000. 
D) $2,000,000.

Quizplus · Accepted Answer

Residual income = Operating income − (Operating assets × Desired ROI)
$60,000 = $100,000 − (Operating assets × 8%)
Operating assets × 8% = $100,000 − $60,000
Operating assets = $40, 000 ÷ 8% = $500,000

Fairpoint Products Provided the Following Selected Information About Its Consumer