In the current year,the New Products Division of Testar Company had operating income of $8,000,000 and operating assets of $44,800,000.Testar has set a target return on investment (ROI)of 16% for each of its divisions.Which of the following statements is correct?
A) The New Products division yielded ROI that was lower than the target ROI.
B) Residual income for the New Products division was $832,000.
C) The New Products division yielded no residual income.
D) All of these answers are correct.

Question

Quizplus · Accepted Answer

Residual income is calculated as operating income minus (target ROI * operating assets). In this case, residual income is $8,000,000 - (0.16 * $44,800,000) = $832,000.

In the Current Year,the New Products Division of Testar Company