Beta Division had the following information: $\begin{array}{lr}
\text { Asset base in Beta Division } & \$ 400,000 \
\text { Net income in Beta Division } & \$ 50,000 \
\text { Weighted average cost of capital } & 12 \% \
\text { Target ROI } & 15 \% \
\text { Margin for Beta Division } & 20 \%
\end{array}$ What is the residual income for Beta Division?
A)$(10,000)
B)$7,500
C)$48,000
D)$60,000

Question

Quizplus · Accepted Answer

Residual income is calculated as Net Income - (Asset base * Target ROI). Here, it is $50,000 - ($400,000 * 15%) = $50,000 - $60,000 = $(10,000).

Beta Division Had the Following Information What Is the Residual Income for Beta Division? A)$(10,000) B)$7,500

Beta Division Had the Following Information What Is the Residual Income for Beta Division?
A)$(10,000)
B)$7,500