Dade Corp.has residual income of $10,000.If operating income equals $30,000 and the minimum required rate of return is 8%,what are average invested assets?
A)$125,000
B)$375,000
C)$250,000
D)$500,000

Question

Quizplus · Accepted Answer

Residual income = Operating income - (Minimum required rate of return x Average invested assets)
$10,000 = $30,000 - (0.08 x Average invested assets)
$10,000 = $30,000 - 0.08AIA
0.08AIA = $20,000
AIA = $20,000/0.08
AIA = $250,000

Dade CorpHas Residual Income of $10,000