The following information has been gathered for the Door Division: C$$\begin{array} { | l | r | }
\hline \text { Return on inw estment (Rol) } & 15.0 \% \
\hline \text { Sales } & \$ 120,000 \
\hline \text { Operating assets } & \$ 60,000 \
\hline \text { Cost of Capital } & 12.0 \% \
\hline \text { Profit margin } & 7.5 \% \
\hline
\end{array}$$ompute the Door Division's residual income.
A) $1,800.
B) $2,700.
C) $3,600.
D) $5,400.

Question

The following information has been gathered for the Door Division: C$$\begin{array} { | l | r | } 
\hline \text { Return on inw estment (Rol) } & 15.0 \% \
\hline \text { Sales } & \$ 120,000 \
\hline \text { Operating assets } & \$ 60,000 \
\hline \text { Cost of Capital } & 12.0 \% \
\hline \text { Profit margin } & 7.5 \% \
\hline
\end{array}$$ompute the Door Division's residual income. 
A) $1,800.
B) $2,700.
C) $3,600.
D) $5,400.

Quizplus · Accepted Answer

Residual income = (ROI - Cost of Capital) * Operating Assets= (15% - 12%) * $60,000= 3% * $60,000= $1,800

The Following Information Has Been Gathered for the Door Division