The Global Division of Station Depot has invested capital of $920,000.If residual income is $4,600 and net operating profit after taxes is $69,000, how much is the cost of capital?
A)7.00%
B)6.67%
C)7.50%
D)8.00%

Question

Quizplus · Accepted Answer

The cost of capital can be calculated using the formula for residual income: Residual Income = Net Operating Profit After Taxes - (Cost of Capital * Total Capital). Plugging in the given values: $4,600 = $69,000 - (Cost of Capital * $920,000). Solving for the Cost of Capital gives 7.00%.

The Global Division of Station Depot Has Invested Capital of $920,000.If