$\begin{array}{lr}
\text { Sales } & \$ 185,000 \
\text { Operating income } & \$ 60,000 \
\text { Operating assets } & \$ 375,000
\end{array}$ The manager can invest in an additional project that would require $40,000 investment in additional assets and would generate $6,000 of additional income. The company's minimum rate of return is 14%.
-Refer to Figure 12-2. What is the residual income for Stock Division with the additional project?
A) $40,000
B) $6,000
C) $7,900
D) $4,200
E) $25,600

Question

Quizplus · Accepted Answer

Residual income = Operating income - (Minimum rate of return * Operating assets)= $60,000 - (0.14 * $375,000)= $60,000 - $52,500= $7,500With the additional project:Operating income = $60,000 + $6,000 = $66,000Operating assets = $375,000 + $40,000 = $415,000Residual income = $66,000 - (0.14 * $415,000)= $66,000 - $58,100= $7,900

Sales $185,000 Operating income $60,000 Operating assets $375,000\begin{array}{lr}\text { Sales } & \$ 185,000 \\\text { Operating income } & \$ 60,000 \\\text { Operating assets } & \$ 375,000\end{array} Sales Operating income Operating assets ​$185,000$60,000$375,000​

$\begin{array}{lr}\text { Sales } & \$ 185,000 \\\text { Operating income } & \$ 60,000 \\\text { Operating assets } & \$ 375,000\end{array}$