All other things the same,which of the following would increase residual income?
A)Increase in average operating assets.
B)Decrease in average operating assets.
C)Increase in minimum required return.
D)Decrease in net operating income.

Question

Quizplus · Accepted Answer

Residual income is calculated as net operating income minus a minimum required return multiplied by average operating assets. Therefore, decreasing average operating assets would increase residual income because there would be less assets to spread the required return over. All other choices would decrease residual income - increasing average operating assets would increase the amount of assets the required return is spread over, increasing the required return would increase the amount subtracted from net operating income, and decreasing net operating income would decrease the overall amount of income available to offset the required return.

All Other Things the Same,which of the Following Would Increase