Which of the following is the formula for calculating residual income?
A)Operating income - average assets
B)Operating income plus interest and depreciation expense
C)Operating income - average assets x required minimum rate of return
D)None of these answer choices are correct.

Question

Quizplus · Accepted Answer

Residual income is calculated by subtracting the required minimum rate of return (often the company's cost of capital) multiplied by the average assets from the operating income. Therefore, the formula for residual income is Operating Income - (Average Assets x Required Minimum Rate of Return). Option C correctly represents this formula.

Which of the Following Is the Formula for Calculating Residual