Miami Corp.has an operating income of $120,000,average invested assets of $600,000,and a cost of capital of 7%.What is the residual income?
A)$100,000
B)$166,667
C)$78,000
D)$42,000

Question

Quizplus · Accepted Answer

The formula for residual income is operating income - (average invested assets x cost of capital). 
Plugging in the given values, we get: 
Residual income = $120,000 - ($600,000 x 0.07) = $78,000 
Therefore, the correct answer is (C).