Fairpoint Products provided the following selected information about its consumer products division for the current year: $$\begin{array} { l c c }
\text { Desired ROI } & 8 \% \
\text { Net Income } & \$100,000 \
\text { Residual Income } & \$ 60,000
\end{array}$$ Based on this information,the division's investment amount was:
A) $500,000.
B) $1,250,000.
C) $750,000.
D) $2,000,000.

Question

Fairpoint Products provided the following selected information about its consumer products division for the current year: $$\begin{array} { l c c } 
\text { Desired ROI } &  8 \% \
\text { Net Income } & \$100,000 \
\text { Residual Income } & \$  60,000
\end{array}$$ Based on this information,the division's investment amount was:
A) $500,000.
B) $1,250,000.
C) $750,000.
D) $2,000,000.

Quizplus · Accepted Answer

Residual income = Net income - (Desired ROI * Investment)$60,000 = $100,000 - (0.08 * Investment)Investment = $1,250,000