Poxahatchee Products provided the following selected information about its consumer products division for 2012: $\begin{array}{lc}
\text { Desired ROI } & 10 \% \
\text { Net Income } & \$ 150,000 \
\text { Residual Income } & \$ 50,000
\end{array}$ Based on this information, the division's investment amount (amount of operating assets) was
A) $700,000.
B) $1,000,000.
C) $4,000,000.
D) $20,000,000.

Question

Quizplus · Accepted Answer

The division's investment amount can be calculated using the formula for residual income: Residual Income = Net Income - (Desired ROI * Investment). Plugging in the values: $50,000 = $150,000 - (10% * Investment). Solving for Investment gives $1,000,000.