The following information is available for Des Plaines Company: Invested capital is defined as total assets less current liabilities.The after-tax operating income is $150,000.The after-tax cost of capital is 20%.The before-tax operating income is $200,000.What is the residual income?
A)$90,000
B)$120,000
C)$125,000
D)$175,000

Question

The following information is available for Des Plaines Company:  Invested capital is defined as total assets less current liabilities.The after-tax operating income is $150,000.The after-tax cost of capital is 20%.The before-tax operating income is $200,000.What is the residual income?
A)$90,000 
B)$120,000 
C)$125,000 
D)$175,000

Quizplus · Accepted Answer

Residual Income = After-tax operating income - (Invested capital x After-tax cost of capital)
= $150,000 - (Total assets - Current liabilities) x 0.20
= $150,000 - ($11,ea8234,0f7c,5c8d,9591,dfafebf15345,TB4157,00 - Current liabilities) x 0.20
We are not given the value of current liabilities, hence we cannot calculate the exact residual income. However, option C is the closest to the calculated residual income.

The Following Information Is Available for Des Plaines Company