The Tipton Division of Dudley Company reported the following data last year:

-Tipton Division's average operating assets last year were:
A) $625,000
B) $250,000
C) $416,677
D) $333,333

Question

The Tipton Division of Dudley Company reported the following data last year:
 
-Tipton Division's average operating assets last year were:
A) $625,000 
B) $250,000 
C) $416,677 
D) $333,333

Quizplus · Accepted Answer

ROI = Net operating income ÷ Average operating assets
20% = Net operating income ÷ Average operating assets
Net operating income = 20% × Average operating assets
Residual income = Net operating income - (Average operating assets × Minimum required rate of return)
$50,000 = Net operating income - (Average operating assets × 12%)
$50,000 = (20% × Average operating assets) - (Average operating assets × 12%)
$50,000 = 8% × Average operating assets
Average operating assets = $50,000 ÷ 8% = $625,000

The Tipton Division of Dudley Company Reported the Following Data