Howard has an ROI of 16% based on revenues of $400,000.The investment turnover is 2.What is the residual income if the cost of capital is 9%?
A)$64,000
B)$36,000
C)$4,000 negative
D)$14,000

Question

Quizplus · Accepted Answer

Residual income is calculated as: Residual Income = Operating Income - (Cost of Capital * Investment). Operating Income = ROI * Investment = 16% * $200,000 = $32,000. Cost of Capital * Investment = 9% * $200,000 = $18,000. Residual Income = $32,000 - $18,000 = $14,000.

Howard Has an ROI of 16% Based on Revenues of $400,000.The