Consider the following information for the Executive Division of Buy Electronics: $\begin{array}{lrr}&\text { December } 31\&2017&2018\
\text { Total assets } & \$ 11,800,000 & \$ 11,000,000 \
\text { Noninterest-bearing current liabilities } & 500,000 & 520,000 \
\text { Net income } & 700,000 & 800,000 \
\text { Interest expense } & 210,000 & 300,000 \
\text { Income tax rate } & 35 \% & 35 \% \
\text { Cost of capital } & 7 \% & 8 \% \
\text { Required rate of return } & 9 \% & 11 \%
\end{array}$ How much is residual income for 2018?
A)$45,500
B)($180,500)
C)$119,000
D)($227,500)

Question

Quizplus · Accepted Answer

Residual income = Net income - (Required rate of return * Total assets)= 800,000 - (0.11 * 11,000,000)= 800,000 - 1,210,000= $45,500

Consider the Following Information for the Executive Division of Buy