In the current year,the New Products Division of Testar Company had operating income of $8,000,000 and operating assets of $44,800,000.Testar has set a target return on investment (ROI)of 16% for each of its divisions.Which of the following statements is correct?
A) The New Products division yielded ROI that was lower than the target ROI.
B) Residual income for the New Products division was $832,000.
C) The New Products division yielded no residual income.
D) All of these are correct.

Question

Quizplus · Accepted Answer

New Products division:
ROI = Operating income ÷ Operating assets
ROI = $8,000,000 ÷ $44,800,000 = 17.9% (rounded)
The New Products division's ROI of 17.9% is higher than the target ROI of 16%.
New Products division:
Residual income = Operating income - (Operating assets x Desired ROI)
Residual income = $8,000,000 - ($44,800,000 x 16%)= $832,000

In the Current Year,the New Products Division of Testar Company