A small surveying company has decided they would like to move their accounting in-house and will be training a new employee. In anticipation of this new development, they have decided to purchase a new accounting software package that should service all of their needs. Bob, a manager, has put together the following information: If the company selects Software 2, then how much Operating Income should they expect it to generate?

Question

A small surveying company has decided they would like to move their accounting in-house and will be training a new employee. In anticipation of this new development, they have decided to purchase a new accounting software package that should service all of their needs. Bob, a manager, has put together the following information:  If the company selects Software 2, then how much Operating Income should they expect it to generate?

Quizplus · Accepted Answer

This question requires familiarity with the formula for Residual Income: Operating Income - (Required Rate of Return × Investment). This question provides some of these numbers. Solve for Operating Income as follows: $104 = Operating Income - (0.072 × $6,899). $104 = Operating Income - $496.73. Operating Income = $600.73 (Choice D).

A Small Surveying Company Has Decided They Would Like to Move