Michigan Company
Ann Arbor Division of the Michigan Company has the following statistics for its most recent operations:
$\begin{array}{ll}
\text { Assets available for use (Market Value) } & \$ 3,600,00 \
\text { Assets available for use (Book Value) } & \$ 2,000,00 \
\text { Am Arbor Division's return on investment } & 25 \% \
\text { Am Arbor Division's residual income } & 200,000 \
\text { Return on investment (entire Michigan Company) } & 20 \%
\end{array}$

Refer to Michigan Company.What is the target rate of return in Michigan Company?

Question

Michigan Company
Ann Arbor Division of the Michigan Company has the following statistics for its most recent operations:
$\begin{array}{ll}
\text { Assets available for use (Market Value) } & \$ 3,600,00 \
\text { Assets available for use (Book Value) } & \$ 2,000,00 \
\text { Am Arbor Division's return on investment } & 25 \% \
\text { Am Arbor Division's residual income } & 200,000 \
\text { Return on investment (entire Michigan Company) } & 20 \%
\end{array}$

Refer to Michigan Company.What is the target rate of return in Michigan Company?

Quizplus · Accepted Answer

The target rate of return can be calculated using the residual income formula: Residual Income = Operating Income - (Target Rate of Return * Book Value of Assets). Given the residual income and return on investment, the target rate of return is 15%.

Michigan Company Ann Arbor Division of the Michigan Company Has

Michigan Company
Ann Arbor Division of the Michigan Company Has