A company's average operating assets are $220,000 and its net operating income is $44,000. The company invested in a new project, increasing average assets to $250,000 and increasing its net operating income to $49,550. What is the project's residual income if the required rate of return is 20%?
A) ($450)
B) $450
C) $600
D) ($600)

Question

Quizplus · Accepted Answer

Residual income = Net operating income - (Required rate of return * Average operating assets)= $49,550 - (0.20 * $250,000)= $49,550 - $50,000= -$450

A Company's Average Operating Assets Are $220,000 and Its Net