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:
$$\begin{array} { | l | l r | }
\hline \text { Desired ROI } & & 8 \% \
\hline \text { Net Income } & \$ & 100,000 \
\hline \text { Residual Income } & \$ & 60,000 \
\hline
\end{array}$$
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:
$$\begin{array} { | l | l r | } 
\hline \text { Desired ROI } & & 8 \% \
\hline \text { Net Income } & \$ & 100,000 \
\hline \text { Residual Income } & \$ & 60,000 \
\hline
\end{array}$$
A)$500,000.
B)$1,250,000.
C)$750,000.
D)$2,000,000.

Quizplus · Accepted Answer

Residual income = Net income - (Desired ROI * Investment amount)$60,000 = $100,000 - (0.08 * Investment amount)Investment amount = $1,250,000

Fairpoint Products Provided the Following Selected Information About Its Consumer